Indian MSMEs could gain 35% profit boost from AI, report says

Key Takeaways

• AI integration could raise MSME profitability by 30-35%, per a Google and India SME Forum report
• Nearly 60% of digitally-enabled MSMEs report double-digit revenue growth
• 78% of surveyed enterprises saw customer acquisition costs drop after digital adoption

AI adoption could lift profit margins for Indian micro, small, and medium enterprises by 30-35%, according to a joint report from Google and the India SME Forum. The study also found that nearly 60% of MSMEs with digital tools are hitting double-digit revenue growth, a number that should catch the attention of the 63 million small businesses driving roughly 30% of India's GDP.

What the numbers actually say

The report surveyed MSMEs across India and found three key shifts tied to digital adoption. First, 66% reported expanded market access beyond their immediate geography. Second, 58% said customer acquisition improved. Third, and perhaps most striking, 78% experienced a drop in customer acquisition costs. Lower CAC with broader reach is exactly the kind of efficiency gain that compounds into real margin improvement.

On the macro side, the report ties digital advertising by MSMEs to roughly Rs 49,700 crore (about $5.9 billion) in economy-wide output and Rs 32,300 crore in Gross Value Added. These figures suggest that when small businesses spend on digital marketing, the ripple effects reach far beyond their own P&L statements.

Google's pitch: agentic AI for small business

Vidhya Srinivasan, Google's VP and GM for Ads & Commerce, framed the findings around a specific trajectory. "India's digital maturity has unlocked new opportunities for small businesses," she said. "Our AI-powered tools have helped millions of small businesses reach new customers on Google and convert real-time consumer interest into growth."

But Srinivasan also pointed to what comes next: agentic AI. "Looking ahead, agentic AI will actively work on a business' behalf to connect them with ready buyers, predict hyper-local demand shifts, and win new customers at the exact moment of intent," she added. Translation: Google sees a future where AI agents handle lead generation and demand forecasting for small businesses that lack the staff to do it themselves.

Government sees tech as a leveler

Sushri Shobha Karandlaje, Minister of State for MSME and Labour & Employment, used the report launch to emphasize geographic equity. "Technology is reshaping grassroots commerce, allowing a business in any district to command visibility and engage consumers directly," she said in a written message. "This democratization ensures that market exposure is accessible to all, irrespective of geographic location or capital size."

Bharat Khera, Secretary of the MSME Ministry, called AI a "business enabler that will shape the future of enterprise." He emphasized that the next growth phase requires collaboration among government, industry, financial institutions, and technology partners. That framing suggests the ministry sees AI adoption as a joint project, not something it expects MSMEs to figure out alone.

The structural gap AI might close

Vinod Kumar, President of the India SME Forum, offered a candid diagnosis of why AI matters here. "For many small businesses, constraints related to information asymmetries, managerial bandwidth and access to specialised capabilities can limit their ability to scale and compete effectively," he said. The report's findings, he argued, suggest that digital adoption and AI can "help narrow some of these structural disadvantages."

That last point deserves emphasis. MSMEs in India often compete against larger firms with dedicated marketing teams, data analysts, and supply chain specialists. If AI tools can approximate some of those capabilities at low cost, the competitive gap shrinks. A small manufacturer in Coimbatore could theoretically use the same demand-forecasting model as a large retailer in Mumbai.

What this means for tech vendors

Reports like this tend to double as marketing for the companies that commission them. Google benefits when more MSMEs spend on its ad platform and adopt its AI tools. That does not make the findings wrong, but it does mean readers should treat the 30-35% profitability figure as a projection, not a guarantee.

For tech vendors targeting the Indian SMB market, the report signals clear demand. Small businesses want tools that lower customer acquisition costs, expand market reach, and automate tasks they cannot staff for. The winners will be platforms that deliver those outcomes at price points MSMEs can stomach.

Frequently Asked Questions

How much can AI increase MSME profitability in India?

The Google-India SME Forum report projects a 30-35% improvement in overall business profitability for MSMEs that integrate AI into their operations.

What percentage of Indian MSMEs see double-digit revenue growth from digital tools?

Nearly 60% of digitally-enabled Indian MSMEs report double-digit revenue growth, according to the report.

How does digital adoption affect customer acquisition costs for MSMEs?

78% of surveyed MSMEs experienced a notable drop in customer acquisition costs after adopting digital tools.

What is agentic AI and how will it help small businesses?

Agentic AI refers to AI systems that act autonomously on behalf of a business. Google says these tools will connect MSMEs with ready buyers, predict local demand shifts, and capture customers at the moment of purchase intent.

Source: Tech-Economic Times / ET