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Unlocking the AI Edge for MSMEs
Overview
With consumers actively adopting AI and government platforms firmly in place, the pivotal question is how will AI be consumerised and scaled across India’s industrial economy? The answer lies in how effectively the AI advantage is unlocked by India’s 7,59,56,661 MSMEs — including informal micro enterprises (IMEs)1 —which form the backbone of the country’s industrial and employment landscape.
The report takes that question head-on with a focus on manufacturing MSMEs, which accounted for approximately 35.4% of India’s manufacturing value added in FY23–24 and nearly 48.58% of exports in FY24–25.2
Unlocking opportunities
USD 135.6 billion - USD 149.9 billion
Amount AI could contribute to MSME value creation by 2035, assuming MSMEs account for 50% of the nation’s total manufacturing value added
AI can enable MSMEs to:
leapfrog structural and operational constraints
escape the low-productivity trap
reposition themselves as competitive value creators rather than cost-based suppliers
AI can deliver these outcomes by playing three distinct roles as:
Scaler
Decreasing processing times and/or increasing resource capacity
Enricher
Enhancing human capabilities by providing tools that augment decision-making, creativity, and innovation
Reinventor
Transforming how MSMEs create, deliver, and capture value
Leader speak
This report provides the 3A2I framework that tells you how to make AI equitable in its journey of value creation.
Raghav Narsalay
Partner and Leader,
Research and
Insights Hub
Research and
Insights Hub
This report focusses on a simple but critical idea: the real test of AI's potential is not its capability, it is its ability to reach the last mile.
Shardul Fadnavis
Partner and Leader,
Energy, Utilities
and Resources
Energy, Utilities
and Resources
As AI transforms economies globally, 'AI Edge for Viksit Bharat' delves into how India can drive equitable growth through AI. At PwC, this resonates deeply with our purpose - of building trust in society and solving important problems.
Ruchi Mann
India Leader,
Brand, Marketing
and Public Policy
Brand, Marketing
and Public Policy
MSME journey in India
Creating value with AI for manufacturing MSMEs
AI as a scalar
Pre-AI challenge
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AI solution
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.
Impact
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.
AI as a scalar
Pre-AI challenge
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.
AI solution
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.
Impact
Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.
Navigating the challenges and risks of AI adoption
MSMEs face two critical types of challenges when adopting AI: readiness challenges and ecosystem challenges.
- Readiness challenges stem from a lack of clarity and confidence among MSME founders and workers about their enterprise’s preparedness for AI integration and the tangible value it can deliver. Many MSMEs struggle to understand if their data and operations are adequately equipped to benefit from AI, leading to uncertainty about the future impact on their workforce.
- Ecosystem challenges arise from MSMEs’ heavy dependence on external solution providers, often resulting in sub-optimal implementations and fragmented support. Unlike larger firms, MSMEs typically lack a robust, trusted ecosystem to guide technology decisions, scale use cases, and ensure sustained value from AI investments. This combination of internal readiness gaps and external ecosystem limitations significantly hinders MSMEs’ ability to realise AI’s full potential.
Risks
Key risks that could hinder Micro, Small, and Medium Enterprises (MSMEs) in adopting AI and participating effectively in AI-driven manufacturing and global value chains (GVCs) if not properly managed:
01
Misaligned skilling and knowledge retention
MSME workers may focus on short-term AI courses, gaining certificates but lacking practical skills, leading to limited real value creation. Additionally, knowledge gained from AI projects often goes undocumented and is lost when employees leave or change roles, forcing firms to restart efforts repeatedly.
02
Regulatory and statutory misalignment
Emerging AI regulations, such as those related to workplace surveillance and data protection (e.g., India’s DPDP Act, 2023), may not adequately address AI’s integration into manufacturing, risking non-compliance or misuse. Poorly designed AI in HR functions could also cause indirect discrimination, conflicting with labor laws.
03
Aggressive trade pacts
MSMEs collaborating internationally on AI may face risks related to unclear intellectual property and data governance, and potential pressures to share sensitive proprietary or machine data due to trade agreements.
04
Societal inequities and regional disparities
Larger, urban MSMEs are more likely to receive AI investments and skilled workforce, while smaller, informal, or remote MSMEs may lag behind, exacerbating inequality and limiting opportunities for less advantaged firms.
The 3A2I framework
The 3A2I framework’s systemic approach comprises two dimensions:
Foundation: Access, acceptance, and assimilation, which represent 3A, create the base for systems to learn continuously and responsibly, earn societal trust, and absorb insights and experiences across sectors.
Pathways to success: Implementation and institutionalisation (2I) enable practical, scalable deployment and long-term integration of AI-driven/AI-relevant initiatives into enduring systems.
A
Access
Opportunities to access resources relevant to building value for AI and with AI
A
Acceptance
Building trust, transparency, and ethical adoption
A
Assimilation
Piloting and integrating solutions for Al and with AI at scale
I
Implementation
Real-world deployment, learning, and adaptation
I
Institutionalisation
Embedding solutions for Al and with Al sustainably into policies, systems and culture
Access
Refers to providing all MSMEs and stakeholders with the essential resources needed to harness AI effectively.
Acceptance
Is about cultivating trust and encouraging positive engagement with AI-enabling or AI-enabled innovations within MSMEs as well as stakeholders.
Assimilation
Focuses on integrating knowledge, expertise, and collaborative partnerships to develop and pilot AI-enabling or AI-enabled applications that are relevant and effective. Efficient assimilation allows stakeholders to adapt proven pilots at scale, accelerating innovation diffusion, and ensuring that solutions are both contextually appropriate and scalable, thereby maximising impact.
Implementation
Emphasises practical deployment of solutions with minimal friction. It requires reducing regulatory hurdles, streamlining approval processes, and enabling agile methodologies that promote continuous testing, learning, and iteration. Effective implementation also involves monitoring performance, managing risks, and adapting systems rapidly in response to real-world feedback.
Institutionalisation
Is about embedding AI-enabled or AI-enabling initiatives sustainably within MSME-organisational structures, policies, and cultures. This includes establishing governance frameworks, ethical standards, and accountability mechanisms that ensure AI applications remain reliable, responsible, and aligned with long-term goals. Institutionalisation guarantees continuity beyond initial pilots or projects, fostering ongoing innovation, capacity building, and resilience within systems and communities.
AI navigator
To address ecosystem challenges impacting the ability of MSMEs to effectively scale and be integrated into the AI infrastructure and relevant GVCs, the report recommends establishing an AI navigator. This is a robust, inclusive, seven-layered validation and resolution mechanism that both supports and validates MSMEs’ approaches and solutions along their AI adoption journey.
In the first layer, the navigator supports MSMEs in identifying AI solutions tailored to their unique business challenges, enabling effective adoption.
The second, sandbox-based piloting layer is where MSMEs can experiment with AI in a controlled environment using government and private support or grants.
The third is the technical verification and validation layer that ensures that the AI solutions to be scaled are secure, compliant, and technically sound.
As part of the fourth scaling guidance layer, MSMEs are mentored to effectively industrialise and monetise validated AI solutions.
The fifth—AI infrastructure and GVC integration layer— facilitates MSMEs’ access to GVCs and AI infrastructure industries through matching partnerships.
The final two layers of the AI navigator focus on continuously improving system performance by integrating structured feedback and governance, with particular emphasis on supporting MSMEs operated by women and persons with disabilities.
The way forward
The government has articulated a clear ambition for MSME Champions to serve as key growth engines of Viksit Bharat. MSMEs, in turn, are equally committed to championing this vision. With intent aligned, the moment now calls for decisive action—by MSMEs and the wider ecosystem of stakeholders—to implement the recommendations outlined in this report and address the challenges and risks that could otherwise derail progress towards this shared objective. It is equally important to recognise that this transformation will be a marathon, not a sprint—one that will continuously test the trust, coordination, and collaborative spirit of MSMEs and their partners. A one‑size‑fits‑all approach will fall short, yet excessive customisation risks fragmentation and decision paralysis. The path forward lies in striking the right balance between standardisation and flexibility. Few technologies possess the transformative potential of artificial intelligence. India has been presented with such an opportunity—and the imperative now is to act with purpose and urgency to realise its full value.
Contributors
Dr. Vishnupriya Sengupta, Shreya Sahni, Devraj Nilesh Patil, Aditya Jaiswal
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