An analysis of possible AI applications for Indian SMEs provided several lessons and, above all, underlined the need for a generic framework to guide the development of an AI ecosystem for SMEs. The AI landscape is changing quickly because of activity by governments, start-ups, digital giants, business and academia. To identify the range of AI applications that Indian SMEs could profitably deploy, the report team evaluated those that are currently transforming organizations worldwide. The study was enriched by insights from the US Smart Manufacturing Executive Council, targeted workshops with Indian SMEs and site visits with several SMEs. After conducting the analysis and consulting with experts in India, the team stress-tested more than 25 use cases that could be effective for Indian SMEs. They fall into the following categories: 3.1 Exploring promising AI applications for SMEs AI applications that meet the challenges faced by Indian SMEs TABLE 3 Category MSME challenges AI applications Key sectors Operational and supply-chain efficiencySmall manufacturers incur 15–20% higher raw material costs as well as 20% greater logistics costs compared to large Indian enterprises. In addition, inventory mismanagement often disrupts operations while suppliers cause costly delays. Integrated procurement and supplier monitoring Inventory optimization with demand insights Logistics optimization Predictive analytics for supply-chain continuity Aftermarket supply-chain optimization Manufacturing Retail Food processing Workforce and talentHigh turnover rates and a shortage of skilled labour undermine SMEs’ productivity. SMEs also struggle to retrain employees in the use of advanced digital technologies. Role–skill mapping AI-driven retention strategies Cross-application adaptive learning Quality High defect rates increase operational disruptions and compliance risks. Quality inconsistencies hurt reputation. Unified maintenance and quality control Parameter monitoring and optimization Food processing Textiles Pharmaceuticals Safety Inadequate safety protocols increase compliance risk and affect employee retention. Safety monitoring Root-cause analysis Metals Chemicals Heavy manufacturing Customer experienceLimited engagement with customers and poor demand forecasting hinder most SMEs’ ability to deliver on time. In addition, inadequate feedback loops and static pricing strategies reduce their responsiveness and profitability. Integrated CRM and demand forecasting Dynamic pricing algorithms Sentiment analysis for quality feedback Retail and e-commerce Consumer products Financial services Sustainability High energy consumption, inefficient waste management and overuse of water drive up costs and undermine SMEs’ compliance with environmental standards. Energy optimization Waste and resource management with predictive insights Smart resource use Sustainable product innovation Metals Textiles Chemicals Transforming Small Businesses: An AI Playbook for India’s SMEs 24

Transforming Small Businesses 2025