High Costs Restrain AI Adoption By MSMEs. The Singapore Model Could Help

The study, conducted by the Institute for Competitiveness for the Niti Aayog, pointed out that 59 per cent of India’s MSMEs face “financial limitations that hinder their ability to invest in AI technologies, which include high costs of AI tools, compute infrastructure, and training”. The report went on to say that 91 per cent of the country’s MSMEs felt that “AI should be democratically available and affordable”.

The report recommended the provision of “subsidies, grants, and low interest loans” to help MSMEs invest in AI technologies. However, it did not specify either the extent of the subsidies and grants, or low interest rate loans that could be provided. It also did not provide details on whether this financial support should be extended to all MSMEs, or to an identified set.

Long considered the backbone of the Indian economy, India has more than 6 crore registered MSME units that account for over 35 per cent of India’s manufacturing output and over 45 per cent of its exports. Between them, MSMEs employ over 25 crore people, including semi-skilled and unskilled staff.

What Needs To Be Done

So, what can be done, without much delay, to ensure India’s MSMEs do not have to struggle to hop on to the AI bandwagon?

A possible solution that could be explored is emulating Singapore is doing to help its own small and medium-sized companies achieve success in leveraging AI to grow their businesses and become more productive.

In March 2025, Singapore announced that its Infocomm Media Development Authority (IMDA) is introducing the “GenAI Navigator for Small and Medium Enterprises” — a tool that will help SMEs identify the right AI technology solutions for their businesses.

“The GenAI Navigator, a recommendation tool for SMEs, will provide recommendations based on SMEs’ specific business needs and guide them to the appropriate market tested pre-approved GenAI solutions with up to 50 per cent grant support. The solution categories in the GenAI Navigator include: GenAI enabled solutions for office productivity, customer engagement, and marketing and human resource. The GenAI Navigator will be updated as more GenAI solutions are pre-approved by IMDA,” Singapore’s Ministry of Digital Development and Information said.

India could initiate a pilot project with select MSMEs across sectors and geographies to find out the extent to which the Singapore framework could be adapted here. Leading domestic IT companies and AI startups, as well as progressive local corporate groups, could be roped in by the authorities for this purpose, considering that an exercise of this nature would require both monetary and human resources.

The learnings from the pilot project could, thereafter, be used to come up with an India-specific format which could enable local MSMEs become better suited to using AI in their daily operations.

As per the study conducted by the Institute for Competitiveness for the Niti Aayog, 74 per cent of MSMEs acknowledged the potential of AI, but lacked “the in-house expertise to identify and integrate suitable AI tools into their workflows”. The same report said that 72 per cent of MSMEs had difficulty accessing the training needed to upskill their workforce for AI implementation.

An India-specific framework to raise the AI readiness of MSMEs should, ideally, have roles and responsibilities defined of key stakeholders (governments at the Centre and states, industry, noted AI experts etc.), and, also, mention timelines within which identified measures would be implemented.

Moreover, such a framework should contain provisions on how employees in the MSME arena would be trained in AI technologies and sensitised about data security, and, also, specify who is going to pay for the training. Further, there should be a monitoring and evaluation mechanism to determine the efficacy of how measures are being implemented on the ground.    

The core focus of the entire exercise, however, should always be on the MSME units having an annual turnover of less than Rs 50 crore, since these enterprises are most in need of assistance on the AI front, due to the constraints they face in terms of financial resources and technological expertise.

Following the 2025-26 Union Budget, units with annual turnover of up to Rs 10 crore are now classified as micro enterprises in India, while those with annual turnover up to Rs 100 crore are classified as small enterprises. Companies with an annual turnover of up to Rs 500 crore fall in the category of medium enterprises.

Concluding Thoughts

The famous American sports hero Babe Ruth had said, “Yesterday’s home runs don’t win today’s games.”

India’s MSMEs can relate to that sentiment as they look for ways to keep themselves relevant in a business environment marked by volatility, uncertainty, complexity, and ambiguity.

The continued uncertainty around what the US may do next on the tariff front, and what the terms of the proposed bilateral trade agreement between India and the US — which is expected to be finalised before the end of this calendar year — could be, have further exacerbated the stress on MSMEs.

In such a scenario, MSMEs need all the help they can get so that they can raise their game and become more globally competitive. Providing tangible, measurable support to MSMEs on the AI front could be one way through which India could strengthen this dynamic business segment and ensure they become a more powerful force for good in the world’s most populous country.