New Delhi [India], May 28 (ANI): Indian small businesses recorded their strongest growth since the COVID-19 pandemic in 2025, with four out of five firms reporting expansion, even as rising costs and geopolitical uncertainty continued to pose major challenges, according to CPA Australia's Asia-Pacific Small Business Survey 2025/26.

The survey showed that 80 per cent of Indian small businesses grew in 2025, significantly higher than the Asia-Pacific average of 63 per cent. It also found that 87 per cent of Indian small businesses expect growth in 2026, while 84 per cent anticipate growth in the local economy, making India one of the most optimistic small business markets in the region.

According to the report, improvements in customer experience and greater technology adoption were among the key factors supporting growth last year.

However, the survey highlighted that rising costs remain the biggest concern for businesses. About 42 per cent of respondents said increasing costs were their biggest challenge in 2025, while material costs emerged as the most damaging cost pressure for the third consecutive year.

'Supported by government policies aimed at encouraging more structured and growth-oriented enterprises and unlocking key export markets through free trade agreements to offset tariff impact, Indian MSMEs demonstrated impressive dynamism and confidence last year, and have entered 2026 with strong expansion ambitions,' said Aniket Talati, Certified Practising Accountant and CPA Australia spokesperson in India.

Talati, however, cautioned that businesses are operating in an increasingly uncertain environment due to global developments.

'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,' he said.

The report also pointed to strong hiring trends among Indian MSMEs. It said 52 per cent of Indian small businesses increased employee numbers in 2025, while 69 per cent plan to hire more people in 2026.

The survey further showed that Indian MSMEs are rapidly adopting digital technologies. Around 89 per cent of Indian small businesses generated more than 10 per cent of their revenue through digital payments in 2025, the highest share in the Asia-Pacific region. Additionally, 74 per cent earned more than 10 per cent of their revenue through e-commerce.

Investment in artificial intelligence also rose sharply. The share of Indian small businesses investing in AI increased from 26 per cent in 2024 to 36 per cent in 2025, making AI the top technology investment area for MSMEs.

The report said 41 per cent of Indian small businesses sought business advice from AI tools, up from 25 per cent in 2024. It added that many businesses reported improved profitability due to technology investments over the past year.

At the same time, the report flagged rising cybersecurity concerns. Nearly half of Indian MSMEs reported losing time due to cybersecurity incidents in 2025, while 50 per cent believe they are likely to experience a cyberattack this year.

Talati said government initiatives such as ONDC-linked programmes and growing AI adoption are helping MSMEs expand digitally and improve productivity.

'With SMEs largely using AI to amplify marketing and operational efficiency, AI will be a productivity enhancer rather than a job replacer. However, strengthening cyber defences and data protection awareness is essential for MSMEs to operate safely and sustainably in the digital economy,' he said.

The survey also found that demand for external finance remained strong in 2025, with four in five Indian MSMEs seeking external funding. Business growth, rather than survival, was the primary reason for seeking finance, according to 69 per cent of respondents.

'Access to external finance, combined with sound financial management, will be critical in supporting MSME expansion,' Talati said.

The survey was conducted in November and December 2025 and gathered responses from 4,166 small businesses across 11 Asia-Pacific markets, including 513 respondents from India. (ANI)