Why Indian MSMEs Are Still Hesitant to Adopt AI — Challenges & Road Ahead


AI Adoption in Indian MSMEs: Between Potential and Practical Hurdles




India’s micro, small, and medium enterprises (MSMEs) are standing at a crucial intersection — where the promise of artificial intelligence (AI) meets the hard realities of cost, compliance, and capability. Despite AI's transformative potential, its adoption across India's vast MSME ecosystem remains limited.

A recent government report titled ‘Enhancing MSMEs Competitiveness in India’ explores the many barriers preventing MSMEs from fully leveraging AI technologies. It reveals a landscape full of promise, but also laden with significant challenges.

🔍 Lack of Awareness & Legal Uncertainty

A major stumbling block is the lack of awareness surrounding AI implementation and India's evolving data protection laws. Many MSMEs remain unclear about how compliance works when integrating AI into business workflows. The report suggests that government-led awareness campaigns and simple, clear guidelines could significantly reduce uncertainty and promote responsible AI adoption.

👨‍💻 Shortage of Skilled AI Professionals

Technical expertise is another pressing issue. Most small businesses do not have in-house AI talent capable of assessing and deploying AI tools effectively. This creates a need for collaborative platforms that link MSMEs with AI consultants, academic experts, and tech providers who can offer strategic guidance and implementation support.

💰 Financial Barriers & Affordability

Adopting AI requires investment in infrastructure, training, and tools — costs that are often out of reach for small enterprises. The report urges policymakers to consider:

  • Grants & subsidies
  • Tax incentives
  • Low-interest loans
  • Pay-as-you-go cloud-based AI solutions

These would significantly lower the entry barrier and make high-impact technologies more accessible to small businesses.

Why MSMEs Matter So Much to India

India's MSME sector is a powerhouse. Over 90% of industrial enterprises in India fall under the MSME category. They:

  • Contribute nearly 30% to India’s GDP
  • Employ over 110 million people
  • Account for 48% of the country’s exports

Yet, despite their size and influence, most have not yet embraced AI or digital transformation.

As G Prakash, Chairperson of the Manufacturing Expert Committee at BCIC, notes, “Many MSMEs still view AI as expensive and overly complex. But newer, cloud-based plug-and-play AI solutions are now affordable and can boost productivity by 15–30%.” These tools are capable of enabling:

  • Predictive maintenance
  • Energy optimization
  • Quality control
    Even in small-batch, low-budget production setups.


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