The digitalization journey for SMEs in India is highly diverse, with varying levels of digital maturity in enterprises. The journey can broadly be categorized in five stages (Figure 3). Understanding this journey is a crucial prerequisite for developing strategies to accelerate AI adoption in SMEs. Stages of digital maturity in Indian SMEs FIGURE 3 Stage 1 Digital awarenessStage Digital starterDigital adoptionDigital automationDigital integration Paper-based data capture (in notebooks, ledgers) Use of smartphone- based basic toolsStage descriptionStage 2 Stage 3 Stage 4 Stage 5 Use of MS Excel to capture data Use of accounting software such as TallyUse of ERP and CRM systems to capture data and initial automation Use of e-commerce platformsSensors and IoT devices capture data Partly automated workﬂows Use of analytics on data capturedFully automatic sensor-based data capture Fully automated workﬂows with actuation layer Source: World Economic Forum analysis The adoption of AI-driven solutions will depend on an SME’s stage in the digital journey. Enterprises in the earlier stages (digital awareness, digital starter) need foundational digital tools and skilling before they can start using AI, while those at the advanced stages (digital automation, digital integration) can benefit from alternative financing models to invest in AI solutions and tools. Understanding where an SME stands in its digital journey makes it possible to provide relevant stage-appropriate recommendations and make interventions to accelerate digital transformation. Similarly, clarity on the average digital maturity of SMEs in a particular cluster enables stakeholders to tailor the cluster strategy to focus on differing needs. 1.4 SMEs need a structured approach to AI adoption If India’s SMEs are to adopt AI at scale, they need a structured playbook that can guide them in adopting and deploying AI effectively, offer achievable strategies to overcome systemic barriers and unlock sustainable growth. This AI playbook demystifies AI by providing step- by-step advice on identifying needs, picking feasible but impactful solutions and scaling AI adoption. By consolidating best practices, case studies and policy recommendations, it provides CEOs of SMEs with the confidence to make better decisions and navigate their digital transformation journeys. This report will encourage collaboration among technology providers, financial institutions and policy-makers, aligning stakeholders to drive the growth of Indian SMEs by scaling the use of AI. While the target audience is policy-makers and SME entrepreneurs, the playbook will also help other stakeholders such as start-ups, industry and academia decide how best they can collaborate with Indian policy-makers and SMEs. In that sense, the AI playbook for Indian MSMEs serves as the first resource for Indian policy-makers developing strategies to scale the use of AI in This AI playbook demystifies AI by providing step- by-step advice on identifying needs, picking feasible but impactful solutions and scaling AI adoption.1.3 SMEs operate at different stages of digital maturity Transforming Small Businesses: An AI Playbook for India’s SMEs 13

Transforming Small Businesses 2025