The workforce is essential for successful AI adoption since it determines the sector’s ability to navigate new tools, processes and innovations. Without capability-building, SME AI initiatives run the risk of failure. By addressing workforce challenges in three ways, SMEs can build the workforce they will need for using AI: –Reskilling programmes can bridge the skills gap by introducing sector-specific AI modules and practical applications. Awareness campaigns, delivered in regional languages, can demonstrate AI’s benefits and reduce workers’ apprehensions about being replaced by algorithms. Partnerships with trade unions and welfare boards will reinforce trust and highlight the technology’s potential for enhancing jobs rather than displacing employees. Furthermore, training programmes on digital skills and basic AI tools will enable these workers as well as SMEs to use AI in their day-to-day operations. –Attracting talent to address the acute shortage of skilled professionals in SMEs will be necessary. Innovative incentives such as writing off education loans, fellowships and employee stock ownership plans (ESOPs) will make the SME sector more appealing to data scientists and engineers. Branding SMEs as high-impact, innovation-driven workplaces can position them as employers of choice. In addition, collaborations between start-ups and large corporations will create shared expertise and strengthen the talent pool. –Finally, SME entrepreneurs, who are part of the workforce in a sense, will play a critical role in driving AI adoption. Educating them through targeted workshops and tailored roadmaps will build confidence and awareness. Customized AI implementation plans that align with each SME’s technology maturity level will ensure that entrepreneurs are armed with achievable strategies. Peer learning networks will promote collaboration, the sharing of success stories and the creation of a supportive environment for SME entrepreneurs. Stage 2: Inspiring action (through DNA – data, network and AI applications) This stage focuses on equipping SMEs with the tools and systems to transition from AI awareness to adoption. Anchored by the AI maturity index, it enables businesses to assess their AI-readiness and map an adoption pathway. The AI solutions marketplace serves as a hub for presenting plug- and-play AI solutions. To support the process, it is also necessary to identify alternative funding models to enable AI investment by SMEs. Three elements are critical for success: 1 Use an AI maturity index An AI maturity index is a self-assessment tool that SMEs can use to evaluate their AI maturity, identify the gaps and plan their path to the adoption of AI- led solutions. Such indices can offer a tailored and achievable approach to assess digital readiness, workforce enablement and operational challenges. By providing a step-by-step roadmap, the results from an index can help SMEs pinpoint the areas that require immediate attention and prioritize use cases that align with their business goals. Thus, an index offers not just an evaluation mechanism but also a framework for implementation. Its main objectives are: –Self-assessment. An index allows SMEs to evaluate their AI-readiness using parameters such as data infrastructure, digital adoption and workforce skills. –Guidance for AI transformation. It can offer practical insights for achieving targeted digital maturity and outcomes such as improved productivity, cost optimization and better customer experiences. –Enablement through insights. The insights can help SMEs understand what comes next by identifying high-impact use cases and promoting an AI adoption strategy. An appropriate AI maturity index can also be seamlessly integrated with the Indian government’s Udyam platform to accelerate digital transformation. Because of the integration, the Udyam platform will be able to offer dynamic dashboards for SMEs to visualize their AI-readiness, benchmark against peers and receive tailored recommendations. The index can also align with the Indian government’s Ministry of Micro, Small and Medium Enterprises Technology Centres programme31 to provide practical, sector-specific training and services, which will help scale AI adoption. Furthermore, real-time insights can inform policy-makers about gaps, enabling targeted industry-specific programmes such as grants, subsidies and capacity-building initiatives. Once an AI maturity index is embedded into the Udyam ecosystem, SMEs will be able to access a unified platform for compliance, digital onboarding and AI implementation. An AI maturity index offers not just an evaluation mechanism but also a framework for implementation. Transforming Small Businesses: An AI Playbook for India’s SMEs 41

Transforming Small Businesses 2025