Despite global headwinds, domestic demand drives small business optimism

The ASSOCHAM Dun & Bradstreet Small Business Confidence Index for the April–June 2025 quarter stands at 105.4, marking a 1.8% decline compared to the January–March 2025 quarter, but a notable 6% increase year-on-year.

Although sentiment has slightly dipped compared to the January-March 2025 quarter, it remains comfortably above the long-term average, indicating that optimism among small businesses is still strong.

This suggests a more cautious outlook among small business executives. However, the index remains notably strong—up 6% year-over-year and well above the long-term average—signalling that overall optimism continues to hold steady.

The findings reflect a phase of cautious optimism among India’s small businesses, especially due to global uncertainties and supply chain disruptions, said ASSOCHAM President Sanjay Nayar.

However, it is encouraging to note the underlying strength of domestic demand, improved hiring intentions and expectations of better financing access as monetary conditions ease, added Nayar.

Firms reported mounting margin pressures as weakened pricing power, volatile input costs, and ongoing supply-chain bottlenecks force them into lean inventory practices rather than bulk restocking, according to the survey. Investment plans have been scaled back, with fixed capital outlays moderating amid global headwinds, even as stronger hiring intentions reflect cautious optimism about domestic demand, the report showed.

At the same time, credit access is now seen as “normal” rather than “easy,” suggesting tighter lending standards despite recent RBI rate cuts. Nevertheless, businesses remain hopeful that continued monetary easing will gradually restore more accommodating financing conditions.

“A modest decline in the Confidence Index reflects a measured approach adopted by small businesses amid global trade challenges. The broader picture, however, remains positive, with strong domestic fundamentals. The small business segment continues to be a vital driver of the Indian economy. In order for them to thrive, better financing prospects, policy continuity and predictability, and convergent efforts of stakeholders will help them navigate short-term headwinds and achieve sustained growth,” said ASSOCHAM Secretary General Manish Singhal.

"Small businesses are standing at a critical crossroads, balancing robust domestic momentum against intensifying global headwinds, as reflected in the ASSOCHAM D&B SBCI Index. The uptick in domestic orders, hiring sentiment, and capacity utilization reflects confidence supported by resilient consumption trends and a stable policy environment. However, the sharp fall in export order expectations, combined with weakening pricing power and more cautious investment and credit outlooks, shows firms are recalibrating strategies amid trade risks and global demand uncertainty,” said Arun Singh, Global Chief Economist, Dun & Bradstreet.

“Despite these headwinds, Dun & Bradstreet data highlights India’s advantage in sectors such as specialty chemicals, electrical machinery, and home textiles. Looking ahead, India–U.S. trade agreements will be pivotal; varying tariffs could reshape export dynamics. To remain resilient, small businesses must sharpen domestic focus, optimize capital allocation, and adapt swiftly to shifting global trade policies,” added Singh.

As the external environment becomes more uncertain, sustaining confidence will hinge on how effectively businesses can adapt, by managing input costs, preserving margins, and aligning investment strategies with evolving market conditions, the report said. Strengthening domestic enablers while mitigating external vulnerabilities will be crucial for maintaining the growth momentum of India’s small business sector in the quarters ahead, it added.