AI has the potential to unleash nearly USD 150 billion to the value creation journey of manufacturing-MSMEs, as early as 2035

New Delhi, 07 March 2026: According to a recent joint report by PwC India and the Observer Research Foundation (ORF), titled ‘Unlocking the AI Edge for MSMEs’, AI has the potential to contribute USD 135.6–149.9 billion, at a nominal level, to the value creation journey of manufacturing MSMEs by 2035 — under a scenario where MSMEs account for 50% of India's gross manufacturing value added.

Why AI adoption matters now

The question around diffusion of AI across MSMEs demands attention, given the sheer magnitude of the opportunity ahead. If India succeeds in increasing manufacturing’s share of GDP to 25%, and MSMEs raise their contribution to India’s manufacturing from 35.4% in FY 2023–24 to 50% by 2047, they stand to unlock growth opportunities in the range of USD 3.13–3.21 trillion by 2047

“AI is no longer the preserve of large enterprises. Deployed as a co‑pilot—not a replacement—it can help MSMEs break out of the low‑productivity trap and compete on quality, speed, and innovation, while strengthening jobs and supply‑chain resilience. We are keen to advance thought leadership that underscores a human‑centric, ecosystem‑led approach—one that makes AI accessible, affordable, and actionable for businesses of every size. Used as an enabler of people and productivity, AI can help MSMEs leapfrog structural constraints and integrate more meaningfully into global value chains” said Sanjeev Krishan, Chairperson, PwC in India.

From shopfloor efficiency to global scale

The report highlights AI’s potential to transform MSMEs across the manufacturing value chain—from predictive maintenance, energy optimisation, and vision‑based quality control on shopfloors, to AI‑enabled credit assessment, multilingual customer engagement, compliance automation, and generative design.

By lowering capability barriers and reducing the cost of scale, AI can help small firms improve consistency, meet global standards, and expand output faster.

The report also points to a significant demand‑side opportunity from India’s expanding AI and digital infrastructure. With large investments expected in data centres and semiconductor ecosystems, MSMEs could participate by supplying non‑tech‑intensive capital goods such as harnesses, cooling equipment, and industrial components—opening a USD 100–150 billion manufacturing opportunity over time.

A human‑centric pathway

Importantly, the report stresses a human‑centric, augmentation‑first approach to AI adoption. Rather than displacing labour, responsible AI deployment can improve productivity, safety, and decision‑making while preserving jobs—particularly in labour‑intensive manufacturing clusters that form the backbone of India’s industrial economy.

At the same time, the report flags persistent adoption barriers. Many MSMEs remain cautious due to concerns around affordability, skills gaps, data readiness, trust, and vendor lock‑in, often shaped by earlier digital transformation efforts that failed to deliver expected returns.

Addressing these concerns, the report argues, will be critical to ensuring that AI adoption moves beyond pilots and early adopters to become embedded across MSME workflows at scale.

“India’s AI moment will be defined not by frontier breakthroughs alone, but by how deeply and equitably AI diffuses across its industrial economy. MSMEs sit at the heart of this transformation. Our work with PwC India offers a pragmatic, bottom‑up roadmap that aligns policy, industry, and civil society to ensure AI adoption strengthens competitiveness, preserves employment, and advances inclusive growth,” added Samir Saran, President, ORF.

The 3A2I framework

To support this transition, the report introduces PwC India’s 3A2I framework—access, acceptance, assimilation, implementation, and institutionalisation—as a practical roadmap for MSMEs, policymakers, and ecosystem partners.

The framework positions AI adoption as a capability‑building journey rather than a one‑time technology purchase, emphasising the need to move systematically from experimentation to measurable business outcomes.

A key recommendation is the creation of an ‘AI navigator’—a multi‑layered ecosystem that helps MSMEs discover, test, validate, and scale AI solutions, while reducing the risk of sub‑optimal technology choices and long‑term vendor dependence.

Inclusive and women‑led growth

The report also highlights the opportunity to expand the role of women entrepreneurs in AI‑enabled MSME services, including data analytics, predictive maintenance, quality assurance, and ESG tracking. Strengthening women’s participation in these emerging service layers could make India’s manufacturing ecosystem more inclusive, resilient, and globally competitive.

With over 7.5 crore MSMEs employing around 33 crore people, the sector remains India’s second‑largest employer after agriculture. Ensuring that AI adoption is broad‑based, frugal, and inclusive will be critical to sustaining long‑term manufacturing growth without social disruption.

Read the full report: