Indian small businesses delivered their strongest performance in 2025 since 2019 and remain highly confident about growth in 2026, a report said on Thursday.

However, rising costs continue to pose a significant challenge, potentially constraining future expansion.

According to CPA Australia's Asia-Pacific Small Business Survey 2025/26, 80 per cent of Indian small businesses grew last year, well above the Asia-Pacific average of 63 per cent.

Looking ahead, it said, 87 per cent expect their business to grow in 2026 and 84 per cent anticipate growth in the local economy, outperforming regional peers and reinforcing India's position as one of the most upbeat small business markets in the region.

Improvements in customer experience and technology adoption were identified as key drivers supporting business growth in 2025, it said.

Despite strong sentiment, cost pressures remain the most significant headwind, it said, adding that the survey shows that 42 per cent of respondents cited increasing costs as their biggest challenge in 2025, with materials costs ranked as the most damaging cost pressure for the third consecutive year.

MSMEs continue to play a vital role in job creation, supported by a new generation of younger business owners who are emerging as a powerful driver of growth and transformation across the sector, it said.

Demand for external finance remained strong in 2025, with four in five Indian MSMEs requiring external funding, up from 72 per cent in 2024, it said, adding that 53 per cent reported that access to finance was easy or very easy, indicating improving financing conditions.

The survey was conducted by CPA Australia in November and December 2025, gathering responses from 4,166 small businesses with fewer than 20 employees across 11 Asia-Pacific markets, including 513 from India.

"Rising geopolitical uncertainty since March has added volatility to the business environment. While service sector remains largely unimpacted, manufacturing and export-oriented MSMEs are facing multiple pressures, including higher energy and logistics costs, rising raw material prices and uncertain order pipelines," Aniket Talati, CPA Australia spokesperson in India said.

However, weakening rupee could have improved export margins and helped absorb some of the impact, he said.

Careful planning, proactive cost management, investments in renewable energy and alternative materials, cash-flow control and effective risk management will be critical to sustaining growth and profitability in the period ahead, he added.

Published on May 28, 2026