India's MSMEs Set for Digital Transformation with AI and Sensors
The Indian government is rolling out an ambitious plan to digitally upgrade millions of micro, small, and medium enterprises (MSMEs). This move aims to align domestic manufacturing with global quality and sustainability standards. The goal is clear: boost export competitiveness and reduce shipment rejections.
Massive Digital Upgrade for 72 Million MSMEs
Officials are working to help 72 million MSMEs meet stricter compliance and export-market requirements. They will equip these businesses with essential digital factory tools. These tools include machine monitoring systems, energy management software, and shop-floor applications.
Three people directly involved in the process confirmed the details. They spoke on the condition of anonymity. The development holds significant importance for India's economy. MSMEs contribute 30% to the country's gross domestic product and 45% to overall exports.
Pilot Launch in Gujarat with World Bank Support
The first pilot will launch in Gujarat under the World Bank-backed Raising and Accelerating MSME Performance (RAMP) scheme. It will cover 750 identified manufacturing units. The National Productivity Council (NPC) will implement the project.
This pilot will use sensors, data analytics, automation, and artificial intelligence (AI). It will capture real-time information on machine performance, energy consumption, downtime, and maintenance.
"Limited visibility into shop floor operations remains a key constraint for many MSMEs," said the second person involved. "This often results in low productivity, high energy costs, inconsistent quality, and unplanned downtime."
By digitizing basic shop floor monitoring, the pilot aims to help unit owners identify hidden productivity losses. It will stabilize output, reduce energy wastage, and shift from reactive to planned maintenance.
Technology Providers and Implementation Details
The National Productivity Council will empanel startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as technology providers. These startups will install and support a plug-and-play digital twin solution called the Shopfloor Insight and Monitoring Kit.
Each participating MSME unit will have this kit installed on one machine. The MSMEs themselves are not empanelled by DPIIT. They do not require startup recognition since they are the end users of the technology.
Each technology provider startup will receive ₹50,000 per unit. This payment covers hardware, installation, analytics, and one year of support. The engagement is expected to run until March 2027.
The standardized design and subsidized deployment aim to lower adoption barriers for MSMEs. They create a pathway for scaling digital tools across more machines once the benefits become visible.
Global Context and Competitive Necessity
"From a global competitiveness perspective, such capabilities are increasingly becoming baseline requirements rather than optional upgrades," said Amit Singh, associate professor at the Special Centre for National Security Studies, Jawaharlal Nehru University.
Even small suppliers in major manufacturing economies like Germany, Japan, South Korea, and China now use machine monitoring and energy management systems. They employ basic digital twins to meet buyer expectations on quality consistency, traceability, energy efficiency, and sustainability.
Access to real-time production and energy data helps firms respond to buyer audits and compliance checks. This includes emerging requirements around carbon reporting.
Benefits for Indian MSMEs
"For Indian MSMEs, adopting these technologies could improve product consistency, reduce rejection rates, meet tighter delivery timelines, and support integration into global value chains," said Vinod Kumar, president of the India SME Forum.
Improved shop floor data is expected to strengthen buyer confidence and enable repeat export orders. It allows small firms to compete on reliability and quality rather than purely on price.
Current MSME Landscape in India
In December, Minister of State for Micro, Small and Medium Enterprises Shobha Karandlaje provided data in a written reply to the Lok Sabha. The total number of MSMEs registered in India stood at about 72 million by the end of November 2025.
This registration occurred under the Udyam Registration Portal and the Udyam Assist Platform. Maharashtra accounted for the highest number of registered MSMEs with around 9.4 million units.
Other states with significant MSME presence include:
- Karnataka with about 6.7 million units
- Tamil Nadu with about 6 million units
- Uttar Pradesh with about 4.6 million units
- Gujarat with about 4.1 million units
The National Productivity Council functions under the DPIIT. It focuses on improving productivity and competitiveness across Indian industry and services. Queries sent to the ministry of commerce remained unanswered at the time of reporting.
