AI integration expected to contribute up to $150 billion to manufacturing sector MSMEs by 2035: Report

The integration of Artificial Intelligence (AI) into the manufacturing sector is projected to significantly benefit Micro, Small, and Medium Enterprises (MSMEs) in India, potentially contributing between $135.6 billion and $149.9 billion by the year 2035. This forecast is part of a comprehensive report by PwC titled "Unlocking the AI Edge for MSMEs," which outlines the transformative potential of AI for these smaller enterprises within the manufacturing landscape.

The report emphasizes that this substantial contribution hinges on MSMEs achieving a 50 percent share of the nation's manufacturing value added. Currently, these enterprises contribute approximately 35.4 percent to the manufacturing gross value added (GVA) for the fiscal year 2023-24. To realize the ambitious goal of increasing the manufacturing share of GDP to 25 percent, MSMEs must enhance their role in this sector significantly.

Growth Opportunities for MSMEs

According to the PwC report, MSMEs have the potential to unlock growth opportunities totaling between $3.13 trillion and $3.21 trillion by the year 2047. Achieving this level of growth necessitates an "exponential 19x leap in value creation," which can be facilitated through the adoption of AI technologies on shop floors. By leveraging AI, these enterprises can position themselves as active partners within global value chains, rather than merely as suppliers.

The report also highlights a substantial demand-side opportunity for MSMEs to provide non-technical manufacturing products to AI infrastructure and chip manufacturers. This market is estimated to be valued between $100 billion and $150 billion, encompassing products such as harnesses, chambers, and cooling equipment. As AI is anticipated to contribute $1.7 trillion to the overall economy by 2035, the necessary investment for AI infrastructure is projected to be around $500 billion.

The Role of AI in Manufacturing

The report outlines how non-tech-intensive capital goods constitute 20-30% of capital expenditure on AI-related projects, an area where MSMEs have a strong presence. The integration of AI can help these firms overcome structural and operational constraints, allowing them to escape the low-productivity trap that has historically hindered their growth. By reducing barriers in design, quality, and decision-making, AI enables MSMEs to become competitive value creators rather than just cost-based suppliers.

Specific AI applications highlighted in the report include predictive maintenance, vision-led quality control, and intelligent inventory management. These technologies not only streamline operations but also enhance the overall efficiency of manufacturing processes. Additionally, the combination of AI with local language models simplifies user interfaces, making it easier for employees to engage with the technology without requiring extensive technical expertise.

The report categorizes AI's role into three distinct functions: as a "Scaler" that reduces processing times, as an "Enricher" that enhances human decision-making, and as a "Reinventor" that changes how value is captured within the manufacturing sector. To facilitate this transition, the study proposes a "3A2I framework" focused on "access, acceptance, assimilation, implementation, and institutionalization." This framework aims to assist firms in translating AI adoption into measurable value, ensuring that the benefits of technology are fully realized.

Why it matters

The implications of these findings are profound for both creators and technologists. For MSMEs, the integration of AI represents a pivotal opportunity to enhance productivity and competitiveness in a rapidly evolving market. By adopting AI technologies, these enterprises can not only improve their operational efficiency but also expand their market reach and influence within global supply chains.

For technologists, the report underscores the importance of developing AI solutions that are accessible and user-friendly, particularly for smaller enterprises that may lack the resources to invest heavily in technology. The emphasis on local language models and simplified interfaces highlights a growing recognition of the need for inclusivity in technological advancements. As MSMEs embrace AI, the demand for tailored solutions that cater to their specific needs will likely increase, presenting new opportunities for innovation and collaboration within the tech industry.

In summary, the integration of AI in the manufacturing sector has the potential to reshape the landscape for MSMEs, driving significant economic growth and positioning these enterprises as key players in the future of manufacturing in India.