Tech SMEs, the often-overlooked yet fundamental cogs in the Indian IT landscape, are now enthusiastically adopting AI, changing their business plans and advancing beyond conventional IT services in the direction of innovation driven by AI
For many years, the titans of Indian technology – Tata, Infosys and Wipro – were likely the first companies that came to mind when you heard the term. However, beneath those giants is a whole ecosystem of small and medium-sized businesses, or SMEs. For decades, they’ve hummed along, working on maintenance, coding and other IT-related, often lower down the service supply chain. But that seems to be changing real fast. The driver? Artificial Intelligence (AI), of course.
This change goes beyond a simple makeover and is hardly bound by geography. It is more a proper reframing of their place in not just India, but global IT. SMEs are no longer satisfied with being digital roadies. They are ambitious and are appearing to have been successful in becoming important forces behind digital transformation. Like a chef who once experimented with every dish on the menu suddenly becoming obsessed with creating that one, exquisite soufflé, SMEs have seen a noticeable shift in recent years toward specialization, developing really inventive tech items and providing quite specialized digital services.
This sudden burst of entrepreneurial energy has primarily been driven by client demand – everyone today is clamoring for the latest technological wizardry. That has led to SMEs getting considerably slicker at this digital game, their own digital smarts maturing. And, crucially, increasing the embedding of AI and Generative AI into their offerings.
Although many are still just about testing the waters of the AI pool, there’s a widespread feeling how SMEs deal with this new tech’s onslaught will be the key determinant of whether they sustainably continue their upward march and remain competitive in coming years. The realization has dawned starkly: like the internet, AI isn’t just another passing fancy: you either jump on board or remain left in the digital Stone Age.
That is a significant shift from only two years ago. According to NASSCOM statistics, AI-boosted digital services, coupled with analytics and digital engineering, are currently surpassing traditional IT services by a considerable margin – growing almost one and a half times faster. A greater percentage of SMEs’ revenue is coming from digital products, including those that began with more traditional IT. Although reliable application development and maintenance (ADM) continues to yield significant profits, real growth engines for more tech-inclined SMEs are Cloud migration/modernization, digital engineering, cutting-edge software implementation, and of course, AI.
Digital services will account for a staggering 40–44% of the Indian IT SME scene by FY2030, which is expected to be a $33–36 billion goldmine expanding at a healthy 17-19% per year. The growing demand for AI-as-a-Service, the necessity for professionals capable of creating Agentic AI and the growing acceptance of new Cloud and IoT service providers will all contribute to this expansion. Smaller businesses are also getting involved, working with major giants like Amazon India and Microsoft. This positive outlook is further enhanced by the fact that everyone is looking for offshore digital-first partners.
As a result, SMEs’ approach to growing and scaling up is also changing. Although the founder’s networks are still vital for spreading the word, there is a discernible trend towards more formalized partnership and sales agreements, especially in the digital or SaaS (Software as a Service, for the uninitiated) space.
There is a growing sense that strong and scalable market penetration tactics are going to be central to SMEs future strategies. At the same time, significant growth in labor skilled in AI and digital services has made it possible for these SMEs to meet the complicated demands of their customers. Further improvements to execution strategies, sales and partnership skills and building the operational muscle required for big enterprise clients will ensure their engagement with booming industries like healthcare and high-tech continues to grow.
So far, Indian tech SMEs have shown great resilience and adaptability – but that is only half the battle won. Their ability to shift from being mostly service-oriented to providing more AI-driven, higher-value digital solutions will determine their next big move. Firms are already getting their hands dirty by digitizing core functions – from data management to the actual technology and procedures. That has also led to a marked improvement in the end-user experience, thanks to the integration of Cloud computing, Internet of Things (IoT) widgets and AI.
Next steps will involve going beyond simple functionality to offering clever, networked solutions that actually help companies. For this, the coming few years will be of paramount importance. Firms looking to make a mark must grab this opportunity to establish their market position as the digital world grows and everyone aspires to get a piece of the AI pie, looking for partners that genuinely grasp their AI nuances.
Reference:Read NASSCOM’s “Transforming India’s Technology SMEs for a Digital Future: Navigating the AI Frontier” report here.
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