Budget 2020: Accelerating growth for MSME - Can AI help?

Budget 2020: India has made rapid strides in expanding the MSME (Micro, Small and Medium Enterprise) sector and adopting digital technologies.

Technologies like Artificial Intelligence (AI) offer great promise and raise apprehensions at the same time and it will take the concerted efforts of all key stakeholders in the ecosystem to create a framework for maximum benefit while acknowledging the challenges in the most pragmatic manner possible.

Here, we seek to explore how best the AI technology toolkit can accelerate business performance for MSMEs; followed up with a set of recommendations for the key stakeholders in this arena. The time is right and it is now.

FULL COVERAGE: Union Budget 2020

AI and its promise

Embedding AI across key business functions has the potential of driving exponential impact on key business levers- innovation, growth and efficiency. AI has taken the center stage for business performance acceleration and pivot to the next phase of growth. Analysts expect global AI spending to more than double to $79.2 billion by 2022.

MSME - The real growth engine

MSMEs are an aspirational block with a hunger for growth - contributing to 6.11% of the manufacturing GDP, 33.4% of manufacturing output, 40% of overall exports and 120 million workforce. Accelerated growth of MSME sector has the potential to set India on an upward trajectory of growth. Given its geographic spread in India and the wide variety of business that the MSME sector does, it is worthwhile to study if any enabler like AI can help accelerate the growth of the business.

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A Never before opportunity for MSMEs. Or is it?

Based on the above scenario, AI presents compelling and never before opportunity for Indian MSMEs. AI can vastly contribute in many areas; some of the key areas have been highlighted here:

1. Enable the non-linear increase of manufacturing output

Traditionally, the MSME sector depends on the manual mode of operation. Effective process and operation automation using AI can potentially amplify the output from current levels of 33.4%, resulting in topline and exports growth. When implemented right, this can have a meaningful impact across a wide range of businesses.

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2. Deliver a higher degree of business agility

MSMEs in sectors like agriculture vastly operate with traditional knowledge of the market and operating conditions. Application of AI tools to help meet customer demands quickly can really help businesses to respond to unique customer needs. As an example, leveraging algorithms and AI to predict the impact of weather conditions on commodity prices can help businesses to quickly arrive at informed decisions and respond using predictive models. This aspect can help meet customer demands, which directly helps the business grow faster.

3. Enable technology solutions at a lower total cost of operations

While the sector largely focusses on the output, MSMEs face considerable challenges in prioritising investments in the early stages of their growth. Often areas like customer service suffer. Is there a way to offer more tools and enablers to such business so that they can do more with less? One good option is to leverage AI embedded tools and platforms. An example of this in customer service would be the use of virtual assistants to provide knowledge and context-driven support leveraging NLP to serve customers with consistency at a lower cost. There would be many more examples of such enablers already helping this industry segment.

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4. Make a tangible impact to drive efficiency and optimise inventory management

This area offers the maximum promise in the short and medium-term for MSMEs. They can leverage the suite of AI technologies to address multiple challenges such as - how best to factor inputs to optimise production, managing inventory at a near real-time basis, creating a realistic demand forecast to plan factory schedule. All of these interventions have a direct impact on operational efficacy metrics leading to improved productivity. This area has seen multiple start-ups emerge to provide solutions.

5. Enhancing skill sets in the workforce

Rural workforce constitutes 20% of the workforce employed by the MSME sector in India. They largely perform mundane activities. The correct application of AI technology can help automate dangerous and repetitive activities while upskilling 20 million of this workforce to look to incrementally higher value-added activities. Specialised tech centres run by the government and industry groups that could skill the workforce and enable them to perform hybrid jobs leveraging AI. This intervention can have numerous upsides to it, starting with increased earning potential.

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Opportunity comes with challenges

Over the years, from the advent of the steam engine, new technologies have had a good measure of promise and challenges. This is especially true in the area of AI technologies and its impact. As related to this sector, major challenges include:

• Low penetration of IT systems presents a challenge in the adoption of AI tech, for which basic digitisation of information is a prerequisite.
• Availability of AI skills and training are the fundamental requirements for adoption, which can help us rapidly move from repeatable job activities that could be automated to more value-added activities that should be done.

Affordable technology is the opportunity in front for MSMEs to embrace, adopt and scale their business.

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The Way forward - our recommendations

With government policies over the years aiming to minimise the most fundamental challenges in the MSME sector, it is time to focus on accelerated growth and productivity. Exponential technologies like AI could be a way to springboard growth. Three key areas emerge:

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Work towards making AI toolset affordable. This is the centerpiece of making AI technologies adopted in the MSME landscape. Every stakeholder has a role to play in this - from digitally native product companies, education and skilling infrastructure, government policy and the promoter/owner of the MSME business.

As an example, AI-enabled software for specific functions such as payroll, HR, etc. could offer the easiest way for MSMEs to infuse AI into their business functions.

Government as AI Catalyst. The government is a key stakeholder for facilitating widespread AI adoption in MSME sector through the policy framework such as the Digital India initiative aimed at providing the significant impetus for technology adoption. The Niti Aayog paper has outlined #AIForAll to leverage AI for inclusive growth, harness collaboration and achieve greater good.

The time to act is now and the upcoming budget is expected to make further inroads in enabling this revolution. A few areas to consider for technology adoption by MSMEs could be -

• Create enabling digital data infrastructure - define the policy on availability and accessibility of open data framework
• Continue to provide clarity on the legal framework for data privacy and interoperability
• Enhanced emphasis on structured skilling centres focused on digital technologies and measuring their effectiveness
• Integrating the AI toolkit into all applicable initiatives such as the model district program
• Credits for technology industry's participation in supporting MSMEs with adoption

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Encourage ecosystem for AI adoption. Industry forums and technology providers are playing an active role in creating awareness, upskilling and educating the possibilities from AI for the businesses.

MSME executives have a larger role to play in developing the mindset of technology-driven business and permeate the change.

Adopt successful practices to create thriving indigenous ecosystems of startups and MSME business backed by right funding models from countries such as Netherlands, Poland, France, Austria and China to take this opportunity to the next level.

Now is the Right time to board the AI bus

"Digital India" has provided a significant impetus for technology adoption. AI has tremendous potential not only to fuel the Indian economy but also to impact the everyday lives of citizens.

It is as good a time as any for MSMEs to leverage these exponential technologies to foster high growth with conducive policy climate, affordable technologies and support from industry ecosystem. Let the dialogue begin!

(Ashvin Vellody, Partner and Balaji Venkataraman, Director, Deloitte India.)