AI adoption in Indian MSMEs: challenges and implementation

Lalit Kumar

Chapter 12 in Handbook on Artificial Intelligence and the Circular Economy, 2026, pp 163-177 from Edward Elgar Publishing

Abstract: Micro, Small and Medium Enterprises (MSMEs) play a vital role in the Indian economy owing to their contribution to GDP, employment generation, and exports. However, these enterprises are challenged by several issues, especially in the area of resources and reducing waste, which is critical in the development of sustainable enterprises. There is a possibility for AI to intervene to help tackle these challenges and streamline organizations in terms of operation and efficiency in the use of resources. The purpose of this chapter is to discuss how AI is used in MSMEs, emphasizing revolutionizing the prospects for efficient resource management and reducing the amount of waste. The ongoing and future use of AI in Indian MSMEs also comes with the following challenges: lack of funds, lack of technical skills, data unavailability, organizational resistance, and regulatory and ethical challenges. Measures to help include partnerships with technology vendors and universities, utilizing government incentives, a gradual AI integration process, stressing the data aspect, and workforce development. The chapter uncovers the fact that despite the enormous benefits that accrue to the MSMEs through the deployment of AI, there is a need to approach the implementation with a clear and well-supported plan. As a result of mitigating the barriers and AI adoption, the MSMEs can harness resources more efficiently, cut losses, and improve their standing in a more digital and resource-scarce environment.

Keywords: MSMEs; AI; Resource efficiency; Waste reduction; Sustainability (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035343379
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