Two-Thirds of Indian MSMEs Use AI, Only 21% Employ Business Software: Report

A recent joint study conducted by the Confederation of Indian Industry (CII) and the Indian School of Business (ISB) shines a light on the adoption of technology among India’s micro, small, and medium enterprises (MSMEs). While nearly two-thirds of MSMEs have incorporated artificial intelligence (AI) tools in their operations, less than a quarter utilize integrated business software solutions such as enterprise resource planning (ERP) systems. This points to a significant divide between the initial uptake of advanced technology and its comprehensive application in improving business processes.

The report titled "MSMEs in India: Challenges, Opportunities and the Road Ahead" surveyed 2,919 confirmed MSMEs across all 36 states and Union Territories, covering 40 distinct industry sectors. Findings revealed that 65.8 per cent of the enterprises used AI tools, primarily for business communication, which was reported by 34.9 per cent of respondents. Other key uses included content creation (22.3 per cent) and employee training (18.9 per cent). However, only 21 per cent of these businesses used ERP or customized software for managing their operations, underscoring a gap in the adoption of comprehensive digital management tools.

MSMEs form a critical backbone of India’s economy, contributing roughly 31.1 per cent to the country’s gross domestic product and accounting for 48.58 per cent of exports. Despite their importance, many MSMEs face persistent challenges that hamper growth and efficiency. The study highlighted common issues such as working capital shortages, delayed payments from customers, and difficulties in accessing finance. These factors often leave businesses unable to pay employees on time, purchase raw materials, or invest in expansion, even when confirmed orders exist.

To address these problems, the report suggests enforcing stricter payment timelines for both public and private sector buyers. It also advocates for wider adoption of the Trade Receivables Discounting System (TReDS) and promoting credit availability based on verified cash flows and receivables rather than traditional collateral-based lending. The study further recommends the introduction of short-term bridge credit and improved invoice financing options to help MSMEs manage liquidity issues more effectively.

Awareness of government support schemes is relatively high among MSMEs, with 74.9 per cent acknowledging at least one program. However, only 42.6 per cent have utilized any government schemes. Larger enterprises with certifications, external credit ratings, and greater turnover tend to access these supports more easily. Smaller or less equipped firms often struggle with complex application procedures and eligibility criteria.

To simplify this process, the study proposes creating a unified digital platform. This platform would enable MSMEs to discover relevant government schemes, verify eligibility, submit applications, track approval status, and address grievances through a single interface, making support more accessible.

Certification remains limited among MSMEs, with only 32 per cent holding recognized certifications. Over half of non-certified businesses reported that customers did not require certification, while nearly a third cited lack of awareness as the reason. Among MSMEs focused on exports, which comprise 11.8 per cent of the sample, use of ERP software, certification, manufacturing activity, and reliable internet connectivity correlated with higher chances of engaging in international markets. This suggests that operational capabilities play a crucial role in export participation beyond mere enterprise size.

The report emphasizes linking certification assistance with procurement and export requirements, alongside providing technical guidance, testing support, dependable connectivity, and buyer discovery services to help MSMEs compete globally.

To tackle these interconnected challenges, the CII-ISB report outlines five national missions: improving liquidity and payment discipline, creating an integrated digital journey for MSMEs, supporting technology adoption alongside implementation assistance, enhancing skills development, and boosting market access with a focus on quality and environmental competitiveness.

Collaboration among government bodies, financial institutions, major corporations, industry associations, and academic institutions is deemed essential to strengthen supplier development, workforce training, and market access. The study stresses that the success of policies should be measured by tangible outcomes like reduced payment cycles, easier credit access, faster scheme approvals, increased productivity, and higher export volumes rather than just registration numbers or training sessions.

As of October 6, 2026, registrations via India’s Udyam and Udyam Assist platforms reached 9.77 crore MSMEs, generating employment for approximately 43.27 crore workers, underscoring the sector’s scale and significance. The findings highlight the need for focused efforts to bridge technology adoption gaps and financial constraints to unlock the full potential of MSMEs in India’s evolving economy.