Transforming Small Businesses 2025

1.1 AI can generate significant value for the MSME ecosystem The adoption of AI in Indian MSMEs has the potential to unlock significant economic value for India as well as drive tangible benefits for MSME entrepreneurs. The value unlocked by AI in Indian MSMEs is measured in terms of three levers: productivity enhancement, cost efficiencies and financial inclusion. Taken together, the impact of AI through these three levers will transform the MSME ecosystem as well as individual enterprises. AI will generate value for India and benefit MSME entrepreneurs FIGURE 1 Potential value generation for the economyValue generated for MSME entrepreneurs Economic value 23.5 billion*Factory output 2–140% increase4 2–84% increase4 10–89% reduction4 Equipment effectiveness Speed-to-market$160–215 billion1 $130– 170 billion2$200–300 billion3 $490–685 billion Financial inclusion 6 billion*Interest rate 12–16% reduction5 From days to hours6 ~45% increase7 Loan processing time New-to-credit SME Cost reduction 10 billion*Operating cost 3–92% reduction4 2–99% reduction4 1–58% improvement4 Quality cost Energy efficiencyProductivity enhancement 7.5 billion* Direct value generation Direct value generation Indirect value generation *Value realization by 2030 assuming 20% MSME adoption with an implementation depth of 20% Notes: 1. Based on AI pilots in MSMES: see The Indian Express. (2025). As Punjab industry takes to AI, government sees opportunity for MSME sector. https://indianexpress.com/article/cities/chandigarh/punjab-industry-ai-government-opportunity-msme-sector-9791130/; The Productivity Institute. (2024). AI catalyst: Cracking the code for MSME productivity. https://www.productivity.ac.uk/wp-content/uploads/2024/11/AI-Catalyst-Report-291124.pdf; 2. Based on MeitY’s India’s Trillion Dollar Digital Opportunity and Avendus. MSME lending: Unlocking potential, realizing dreams. https://www.avendus.com/india/reports/59; 3. Based on AI pilots in MSMES: see The Indian Express. (2025). As Punjab industry takes to AI, government sees opportunity for MSME sector. https://indianexpress.com/article/cities/chandigarh/punjab-industry-ai-government-opportunity-msme-sector-9791130/; 4. World Economic Forum. Global Lighthouse Network. https://initiatives.weforum.org/global-lighthouse-network/home; 5. SIDBI. (2018). Study on informal sector lending practices in India. https:// www.sidbi.in/uploads/coca_reports/2019-03-29-165105-t9yg7-Study-on-Informal-Sector-Lending-Practices-in-India-Final-Report.pdf 6. IIFL Finance. (2024). The role of AI & machine learning in MSME lending. https://www.iifl.com/knowledge-center/msme/how-ai-and-machine-learning-are-shaping-msme-lending 7. The Economic Times. (2024). From data to dollars: How AI enhances credit decisioning for MSMEs. https://economictimes.indiatimes.com/small-biz/sme-sector/from- data-to-dollars-how-ai-enhances-credit-decisioning-for-msmes/articleshow/112417725.cms?from=mdr Transforming Small Businesses: An AI Playbook for India’s SMEs 8