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Purpose The aim of this study is to identify and rank the factors of innovation capability (IC) in Indian micro, small and medium enterprises (MSMEs). This study focuses on ascertaining the important factors that help in enhancing the IC with an emblematic focus on the MSME sector of India. Design/methodology/approach This paper proposes a multicriteria decision-making methodology, which is based on fuzzy analytic hierarchical process to prioritize the factors that enhance the IC of MSMEs. Finally, sensitivity analysis is conducted to examine the ranking stability. Findings Knowledge management is the most important enabler, followed by creativity and idea management and organizational culture. Practical implications Several organizations promote the strategic measures for enhancing the IC. To increase their capability to innovate, there is a need to identify, acknowledge and implement the drivers of IC into practice. Originality/value Prioritization done in the study facilitates the entrepreneurs to determine the most important factors that need crucial attention in dealing with sensitive issues of IC. Entrepreneurs can take several steps to implement the most important factors for enhancing the IC into practices for meeting the needs of the consumers, generating profits and enhancing the competitiveness.