PAPER TITLE: A STUDY ON INDIA’S FDI IN COMPUTER HARDWARE

AND SOFTWARE SECTOR

Dissertation submitted to the Department of COMMERCE AND

MANAGEMENT

St. Xavier’s University, Kolkata,

In partial fulfilment for the Degree of BACHELOR OF COMMERCE
(HONS), in
MARKETING
By
VISHESH SHARMA
(Registration No. XK01-1112-0519-21)
Under the Supervision of PROF. BIPLAB DAS
Department of COMMERCE AND MANAGEMENT,
St. Xavier’s University, Kolkata,
Action Area IIIB, P.S. – New Town, Kolkata – 700160,

1
 CERTIFICATE

This is to certify that Mr Vishesh Sharma, a student of Bachelors of Commerce (Honours),

has carried out this Dissertation Project titled “A Study on India’s FDI in Computer Hardware

and Software Sector” under the supervision and guidance of Prof. Biplab Das, in the

Department of Commerce and Management,

St. Xavier’s University, Kolkata, India. The work submitted is original to the best of our

knowledge and has not been carried out elsewhere in any other University or Institute.

(Signature) (Signature with Stamp)

Prof. Biplab Das Dr. Anupam Mitra

(Supervisor) (Associate Dean of Commerce)
Dept. of Commerce & Management St. Xavier’s University, Kolkata
St. Xavier’s University, Kolkata Kolkata- 700160, India
Kolkata- 700160, India

(Signature of Student)

Department of _____________
St. Xavier’s University, Kolkata.
Kolkata – 700160, India.

2
PAPER TITLE: A Study on India’s FDI in Computer Hardware and Software

Sector

DEPARTMENT: Bachelor of Commerce (HONS) (Marketing)

SEMESTER: VI

PAPER CODE: BCHRCC620J

NAME OF STUDENT: Vishesh Sharma

ROLL NO: 1042

DATE OF SUBMISSION OF DISSERTATION: 10/04/2024

Declaration by the Student

I affirm that, to the best of my knowledge, I have identified all my sources and that

no part of my Dissertation Paper contains any unacknowledged material.

Signature of Student (with date)

3
 ACKNOWLEDGEMENT

I would like to thank Dr Anupam Mitra, Associate Dean of the Department of Commerce and
Management (Morning) at St. Xavier's University, Kolkata, for allowing me to work on this
dissertation. I am appreciative of his willingness to assist me in completing this paper and
enhancing myself in a situation I never believed I could overcome.

My sincerest thanks to all the contributors without whose efforts I would not have been able to
complete. No task of this project is a single person’s effort. I am thankful to
Prof. Biplab Das, In-charge of the project.

Under his guidance, I completed the project. His attention and support gave a new outlook to my
work. He made it possible to collect material. I am also very thankful to all the faculty members
of St. Xavier’s University, Kolkata whose methodology helped us in the completion of the
project without any difficulty.

I also express my gratitude to all my friends who helped me by giving their valuable feedback
and suggestions which helped me in making the project better and more profitable.

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CONTENTS Page no
1. Abstract:..................................................................................................................................... 6

2. Introduction:.............................................................................................................................. 7

3. Conceptual Framework:........................................................................................................... 8

3.1 What’s Foreign Direct Investment(FDI):.............................................................................8

3.1.1 FDI ENTRY ROUTES INTO INDIA...............................................................................9

3.1.2 Importance of FDI:........................................................................................................... 9

3.1.3 Segmentation of Foreign Direct Investment (FDI) by Industry in India before Economic
Reforms in 1991:......................................................................................................................10

3.1.4 Pre-reform Policy on foreign direct investment (FDI) in India:..................................... 11

3.1.5 Facts about the Computer Hardware and software sector:............................................. 13

3.1.6 Regulatory Steps Taken GOI to Incentivize More Foreign Direct Investment:............. 16

3.2 Challenges to FDI in India.................................................................................................... 17

3.3 Opportunities of FDI in India:............................................................................................. 19

3.4 Advantages of FDI in India...................................................................................................20

3.5 Disadvantages of FDI in India.............................................................................................. 21

4. Literature Review.................................................................................................................... 23

5. Research Objectives:............................................................................................................... 27

6. Research Methodology:........................................................................................................... 28

7. Research Data Analysis & Interpretation:............................................................................ 29

8. Conclusion & Recommendations........................................................................................... 36

9. References................................................................................................................................. 40

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1. Abstract:

The IT industry in India has made giant strides in the global market that grabbed the attention of

investors around the globe. As such, the market for computer hardware as well as software has

become attractive." This research is designed to find out what determines flow FDI in the

computer hardware and software industry, identifying creation of investment incentives and

analyse the determinants of FDI location preferences. The study emphasises on the states in India

that beckon notable FDI in the given sector so as to figure out why they emerge as attractive

investment portals. It concerns itself with the competence and accessibility of the infrastructure

facilities critical to this sector, as well as the employment of skilled labour which remains a

precondition without which these operations cannot be carried out. The results satisfy the

hypothesis that the existence of essential infrastructure and professionally trained workforce

induce international investors to invest in regions in possession of those items.

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2. Introduction:

India's IT sector has been experiencing growth encompassing not information technology and

software but also business process outsourcing. In 2019 the market saw a 6.1% increase reaching

$177 billion, in the US. Its contribution to GDP is on the rise, expected to climb from 8% in

2017–18 to a projected 12% by 2026. With 70% of the world's internet talent based in India it

has emerged as a key digital hub. The evolution of the IT sector in India has been marked by

stages leading to its dominant position. In the 1970s India followed policies across industries,

including information technology where state ownership was heavily favoured. Private sector

involvement was limited as state owned enterprises took stage and there was a lack of labour

force. Initially overlooked as an industry, software technology parks were. Measures such as

reducing import taxes on hardware and software paved the way for recognizing the software

sector under NCP 84 legislation. The information systems, consisting of electronic hardware and

software, have thrived since. To speed up FDI approvals, a dedicated MeitY unit has been

devised within the ministry that is responsible for the welfare of electronics and information

technology. Strategic investments have been made by many developed countries this way as the

IT industry is well-known as a successful and proficient industry on a global scale. The computer

software and hardware industry of India drew US$ 50.37 billion of foreign direct investment

across March 2000 and February 2020. FDI has seen a strong trend of growth in this

sector.Quality of infrastructure too is another factor that draws tourists into Bangalore.

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3. Conceptual Framework:

3.1 What’s Foreign Direct Investment(FDI):

Foreign Direct Investment is the acquiring of an interest in a foreign company or undertaking by

a foreign enterprise, organisation, or government. Normally the term implies a business decision

for a corporation to make a joint investment or to take up a fair share of the equity in a foreign

company. Normally, this term doesn't consider the purchase of a company's stock by a foreigner.

With a view to strengthening the world economic integration, FDI is deemed to be critical

because of the long-lasting & durable links that it builds up between the economies.

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3.1.1 FDI ENTRY ROUTES INTO INDIA

Foreign Direct Investment (FDI) Entry Mechanisms in India:-

→Automatic Channel: During Automatic Channel selection, the overseas investor and the

Indian entity shall not require the Indian government's approval for the investment deal.

→Government Channel: Government Channel rules require that a prior Indian government

approval is needed before investment. Assessment of the FDI applications received through this

channel is the responsibility of the pertinent Administrative Ministry or Department.

3.1.2 Importance of FDI:

→Economic Growth and Employment Generation:

FDI contributes to economic expansion, facilitates job creation, and enhances quality and

efficiency in ICT-enabled industries.

→Technology Transfer and Skill Enhancement:

FDI facilitates the transfer of technology, managerial expertise, and knowledge, thereby

enriching the domestic workforce.

→Improved Project Development:

FDI leads to better and more cost-effective development of ICT-enabled projects, fostering

innovation and competitiveness.

→Environmental and Economic Benefits:

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FDI brings in new 'clean' technologies, positively impacting the balance of payments and

promoting sustainable development.

3.1.3 Segmentation of Foreign Direct Investment (FDI) by Industry in India

before Economic Reforms in 1991:

The capacity of an economy to allure foreign investment hinges on its stance towards such

investment. In the pre-reform epoch spanning from 1947 to 1990, foreign investment policies

were notably stringent. Nonetheless, a surge in FDI ensued subsequent to the enactment of

economic reforms and the subsequent alterations in foreign investment policy. The allocation of

FDI across industries in India exhibited considerable variations over this period. Over time, there

has been a discernible shift away from financial collaborations towards investments in technical

partnerships and technology transfers. Technical collaborations enable developing nations like

India to access state-of-the-art technology, addressing a crucial requirement. The proliferation of

diverse sectors in India, such as automotive, pharmaceuticals, software, and electronics, has been

facilitated by the technical collaborations that have transpired.

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3.1.4 Pre-reform Policy on foreign direct investment (FDI) in India:

The leaders' top priority after gaining independence was to establish an economically viable

system that could function without outside help. Thus, the government prioritised the growth of

public-sector enterprises. Faster industrial development necessitated the use of natural resources.

The Indian government strictly forbade private corporations and foreign companies from mining

the country's underlying resources. The government has granted its monopoly on the extraction

of the nation's resources to state-owned corporations. Since agriculture is the primary source of

income for the vast majority of the population, investment from abroad (FDI) was opposed for

fear that it would disrupt the current agricultural supply chain and unfairly compete with Indian

farmers. It was for this reason that foreign direct investment was discouraged in farming (except

for the commercial plantation of tea and coffee).

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Foreign Direct Investment was permitted in manufacturing to facilitate the introduction of

cutting-edge machinery. Since the liberalisation era began, foreign direct investment (FDI) in

the manufacturing sector has been on the decline, after having risen from 25.8 per cent in 1948

to 86 per cent in 1980. In the early 1950s, the food and drink industry drew the most foreign

direct investment in manufacturing, followed by the production of pharmaceuticals in the 1980s

and the iron and engineering companies in the 1990s.

Before the economic reforms, the primary and manufacturing sectors received the lion's share of

FDI in India. Foreign direct investment in the primary sector has decreased as the economy has

expanded, whereas FDI in the manufacturing sector has surged dramatically. Among the key

businesses that attracted foreign direct investment were the tea plantation business, the mining

industry, and the petroleum industry. Even after India gained its independence, the influence of

foreign companies (especially English companies) was felt in the tea and petroleum industries.

Still, it was impossible to suddenly expel the foreign firms operating in these areas. In addition,

these businesses oversaw the global tea trade by importing and exporting it to various locations.

Thus, after gaining independence, the Indian government attempted to lessen the influence of

multinational corporations in the tea industry. It was the same in India's petroleum business,

where foreign companies' holdings were gradually reduced over time. For this reason, the oil

industry's once-dominant position in the national annual FDI influx has begun to dwindle.

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3.1.5 Facts about the Computer Hardware and software sector:

The Indian hardware and software IT industry has had a great time and a massive growth, with

the domestic electronics production increasing from USD 29 billion in the year 2014-15 to USD

67 billion in 2020-21, which accounts for about 3.4% of GDP. The government has approved 3

trillion rupees or 6.6 billion dollars in the next six years through four Production-Linked

Incentive schemes to promote chip, smartphone, IT hardware, and component manufacturing.

The revised Vision for Electronics Manufacturing of the Ministry of Electronics & Information

Technology is giving an industry target of $75 billion in 2020-21 and eventually this target

should be reached in 2025-26 with a value of $300 billion. Growth engines are located in the IT

equipment industry, mobile devices, consumer electronics, and automotive electronics. Within

the mobile manufacturing segment, the projection is for $100 billion and upwards of 40% on the

overall industry output.

The IT industry with a combined value of 194 billion US dollars today is the ninth largest sector

in our macroeconomy. It is poised to continue its growth to reach 300-350 billion US dollars by

2025. Originally, the IT majors were concentrated in southern cities like Bangalore and

Hyderabad with additional hubs in say Mumbai, Pune, and Delhi. All these expansions were

created by the government, either through Production-Linked Incentives (PLIs), the Scheme for

Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), or the

Electronics Manufacturing Clusters.

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Moreover, the government funding of the sector through initiatives such as the North East BPO

Promotion Scheme (NEBPS) and the India BPO Promotion Scheme (IBPS), is also encouraged.

These measures target primarily at encouraging growth and development in the Indian domain of

BPO services.

Scheme for Software Technology Parks in India (STPI)

Software Technology Parks in India (STPI) Scheme is a govt. scheme focusing on software

technology parks development. It’s managed by a special society that is subject to the Ministry of

Electronics and Information Technology and works as a 100% export-oriented initiative with

intent to promote computer software development and export of the same via communication

links or physical media. Besides the STPI scheme, the Indian Government has adopted other

measures which were targeted to solve infrastructure deficit and other related costs to ensure an

equitable environment for exporters.Several of these strategies are listed below:

Remission of Taxes and Duties on Exported Goods (RoDTEP)

It is the way, which will help to Franchise preference of our products out of the country borders

to participate in the world market. Within the program, exporters of goods and services are

provided with freely transferable duty credit scripts that are calculated based on the Foreign

Outward Freight Cost (FOB) of actual exports in ‘foreign exchange’ at a predetermined rate.

These RCs can serve as an alternative to paying import tariffs on goods or intermediate inputs.

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Scheme for Service Exports from India (SEIS)

The government started this programme to grant service providers duty credit scrip that is freely

transferable at a rate of 5 to 7 % of net foreign currency earned from exports.

Schemes for Duty Exemption & Remission

This allows duty-free imports of inputs into the export manufacturing industry with the

predetermined export quotas. They consist of a few such as Advance Authorization Plan,

Duty-Free Import Authorization (DFIA) Scheme, Interest Equalization Scheme (IES), Zero Duty

Export Promotion Capital Goods (EPCG) Scheme and Post-Export EPCG Duty Credit Scrip

Scheme among others.

- ISPs that do not furnish gateways (both for satellite and submarine cable connections).

- Infrastructure Companies that Give Dark Fibre Accessibility.

- Using electronic mail.

- The main communication tool to be used is voice mail.

All of the above provisions are subject to compliance with the following stipulations:All of the

above provisions are subject to compliance with the following stipulations:

1. An FDI is permissible up to 100%, conditional that the company already listed in global

regions needs to transfer a quarter of its equity to the general public in India within 5 years only.

2. It is important to note that all the mentioned services are heavily regulated while security

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aspects are being paid required attention where required.

3. Hence, FDI is forbidden in these four sectors and is at the most 49% in basic, cellular,

value-added, and global mobile personal communications by satellite. The conditions of the FDI

can be contingent upon licensing procedures, as well as security requirements, as provided by

both involved parties (company investing and company receiving). Such conditions include

foreign equity limitation, the lock-in periods for equity transfer and change, per the regulations,

and other licensing conditions.

4. FDI is allowed up to 74 percent in ISPs (Internet Service Providers) with gateways, radio

paging and up to point connection with investments over 49 percent requiring the administration

approval. Licensing and safety rules which should be strictly observed cover such services.

3.1.6 Regulatory Steps Taken GOI to Incentivize More Foreign Direct

Investment:

FDI has been an important source of Non-Debt Financing for India's growth and development.

The particular investment rights, such as tax breaks, that India offers to foreign corporations

attract them to the country. Investments from abroad not only assist India to develop its

economy and workforce but also help the country advance technologically. The Indian

government's welcoming policy framework and healthy business climate have kept international

investment streaming into the nation. In recent years, government has taken numerous steps to

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improve the economy, including easing foreign direct investment regulations in a variety of

industries.

1. To entice outside investments, the government has announced a number of investment

programmes, such as the production-linked incentive (PLI) programme for electronics

manufacturing in 2020.

2. FDI inflow was boosted in 2019 when the government changed FDI Policy 2017 to allow for

100 per cent FDI via the automatic method in coal mining operations.

3. Foreign direct investment (FDI) in manufacturing was already permitted under the 100%

automatic route, but in 2019, the current regime made it clear that investments in Indian

institutions involved in manufacturing are also permitted under the 100% automatic route given

that the agreement is performed legally.

4. The state allowed for 24% foreign direct investment in the tech industry. Due to the country's

advantageous demography, extensive internet and mobile phone coverage, massive

consumption, and rapid adoption of technology, the sector offers very high yield prospects for

international investors in India. The Government of India's internet hub for communicating with

foreign investors is called the Foreign Investment Facilitation Portal (FIFP). The Ministry of

Commerce and Industry's Bureau of Industry and Internal Trade manages it.

3.2 Challenges to FDI in India

Although over a hundred Fortune 500 are already invested in India, there are still obstacles to

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increased FDI. Employment, income, spread of technology and a generally more stable

economy have all resulted from these FDIs. The government is working towards a more secure

political and social climate, as well as a more streamlined regulatory framework. Larger foreign

direct investments (FDIs) in India face several obstacles despite their benefits.

Resource Challenges: The quantity of India's resources is legendary. There is both available

labour and substantial resources for both infrastructure and day-to-day operations. But, some

resources have not been fully utilised. Both suburban and urban locations have easy access to

the same wealth of resources. Ten years from now, the goal is to increase infrastructure, which

will cost an estimated US$ 150 billion. It's the 1st step towards fixing the problems with FDI.

Equity Challenge: While it's undeniable that India is progressing at a faster rate presently than

in the past, it's also clear that progress has been made unevenly. This means that while the

wealthier sectors of the city have been fully exploited, the poorer ones have not been fully

accessed. To gain a whole picture of development, it's important to ensure that rural areas have

at least as much progress as metropolitan centres. hence encouraging economic growth that is

both sustainable and fair to all sectors of society.

Political Challenges: The government must be friendly and supportive towards foreign

investors. When dealing with international and insurance matters, this can be negotiated. So,

investors must put forth their arguments to Legislators and foreign companies participating in

India for increased FDI capital in industries like banking. This would improve the FDI policies.

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3.3 Opportunities of FDI in India:

India's economy is booming, with USD 83.47 billion invested in it during the fiscal year

2021–2022. This is the highest amount of foreign direct investment (FDI) India has ever

received. As part of the Atmanirbhar Bharat Abhiyan, India's Honourable Prime Minister

Narendra Modi unveiled a special economic and comprehensive deal worth over USD 280

billion, or 11% of India's GDP (Self-reliant India). Predictions for 2022 put India's GDP growth

at a world-leading 6.9%. The real gross domestic product (GDP) of India is expected to grow by

8% in 2021-22, 7.3% in 2022-23, and 7.0% in 2023-24. According to this forecast, Economic

growth will have the highest rate of growth in the world over the next three years.

India has a large youth population, and experts predict that the country's total population will

increase by 25.8%, from 120.1 billion in 2011 to 152.2 billion in 2036. India has a record

number of teenagers and young adults. By 2035, it is expected to have one of the youngest

populations worldwide.

To build first-rate infrastructure in India, India's Finance minister, Nirmala Sitharaman, unveiled

the country's first Major Infrastructure Pipeline plan. A total of INR 6,500 Crores

(approximately USD 72.82 billion) in additional equity has been added to the Infrastructure

Debt Financing Platform of the National Investment and Infrastructure Fund (NIIF) to

encourage debt and equity investments in infrastructure.

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In the global innovation index for 2022, India jumped to a position of 39, a gain of 41 places in

just 7 years. India is the most prominent nation in all of Central and South Asia. India is the

third highest-ranking country in regard to lower-middle-income economies.

As a result of rising international competition, India has moved up from the 81st position (2014)

to the 65th position in the 2019 - 20 Ranking of Ease of Doing Business. For the first time ever,

Denmark has topped the IMD Global Competitiveness Index, while India has climbed six places

to 36. The impact of the economy is growing: by 2030, India and China are expected to control

the majority of the world's production, and the Indian Ocean area is expected to supplant the

Ocean as the centre of global marine trade. The International North-South Transport Corridor,

which provides passage to both Central Asia and Europe, is suspected to be the cause of this.

Within the next five years, it should increase India's economic clout in the Asia-Pacific region.

3.4 Advantages of FDI in India

● Better job opportunities: Creating more jobs is a top priority for any country hoping to

entice foreign investment. More foreign direct investment (FDI) in the form of equity flows

helps the manufacturing and services sectors grow, which in turn generates more employment

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opportunities. If more people have jobs, they will have more disposable income, which will

stimulate the economy.

● Progress in underdeveloped regions: For poorer nations, this is an especially welcome

development. Backward regions in developing economies like India are being modernised by

foreign direct investments. The economy as a whole will benefit from this.

● An influx of cutting-edge tech: The home nation company has access to the most

cutting-edge international technologies, financial methods, and business procedures. Eventually,

the local economy will benefit from the introduction of cutting-edge technology.

● The cultivation of human capital: Foreign direct investment (FDI) also produces

managerial acumen. The human resources proportion of a country rises as its citizens gain

access to education and new experiences that help them hone their existing set of skills. It has a

multiplier effect because one person can teach many others.

● Better circulation of funds: This is especially helpful for countries that have few

resources at home or few opportunities to access international capital markets.

3.5 Disadvantages of FDI in India

● The decline of handicraft and family-run businesses: Because of the flood of foreign

direct investment (FDI) products onto the market, many domestically produced goods, including

those from cottage and village industries and small industries, had to be phased out. The global

beverage industry is a good illustration.

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● Contributing to environmental pollution: The country's carbon emissions problem is

exacerbated by FDI. Some polluting industries from the developed world have been relocated to

their less developed counterparts in the developing world. The auto industry is particularly hard

hit. Many of these have been relocated to developing nations, where they will be less likely to be

exposed to pollution.

● Currency crisis: Investments from abroad are sometimes a source of currency crises. The

presence of FDls contributed to a currency collapse in Southeast Asian countries in 2000. The

decline in exports caused by the inflation they helped cause has led to a precipitous decline in

the value of the domestic currency. In response, foreign direct investments (FDIs) began pulling

their money out, which triggered a currency crisis. Therefore, a currency crisis can result from

excessive reliance on FDls.

● Infiltration of other cultures: The local population in every country where the FDls have

made inroads has been subjected to a severe case of culture shock as the FDls introduce their

own, foreign way of life. It seems that the home society is either wiped out or severely

hampered. This is reflected in the breakdown of families and communities and the disintegration

of people's moral codes. The hi-tech lifestyle has been detrimental to the value traditionally

placed on interpersonal interactions.

● Corruption in politics: Foreign direct investments have been known to crook

high-ranking officials and political bosses in a variety of countries in order to gain a foothold in

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those markets. The Japanese Lockheed scandal is typical. Foreign direct investments (FDIs) can

exert pressure on governments in order to advance their own interests. This is a widespread

issue throughout Latin America. Criminal activities like: drug trafficking, money laundering, etc.

4. Literature Review

2007, Amitendu Palit and Shounkie Nawani in their article “Technological capability as a

determinant of FDI inflows: Evidence from developing Asia & India” view the quality of

the business climate as a necessary but insufficient requirement for attracting foreign direct

investment. The most important advantage in comparison that countries have is their

technological skills, Saas-based procedures, and the calibre of their people resources that can

handle such technology-intensive activities.

Therefore, the most essential variables for foreign direct investment (FDI) are the availability of

trained workers and state-of-the-art communications networks that can use these ICT

capabilities. According to the authors, this is the reason that India can attract more foreign direct

investment (FDI), as well as a significant FDI moving into sectors based on skill and services,

than nations like Malaysia & Thailand, being far more advanced in terms of the business

environment and the convenience of conducting business.

2006, Floyd D, and McManus, J. “The role and influence of Foreign Direct Investment on

the development process: the case of the software industry in Romania, China, India and

23
the Philippines. Global Business and Economics Review” most crucial factor in the success

of India's Software Sector is the country's highly skilled and reasonably priced labour force.

Each year, India has been producing a significant number of graduates in computer science.

Additionally, a large number of employees are deployed overseas, & upon their return to India,

those employees eagerly share the information that they gained with their counterparts there. Due

to its history, India has a sizable English-speaking population, which has attracted nations with a

strong presence in this sector like the US & UK. In addition, Bangalore has been a desirable

destination due to its superior infrastructure. They also highlight additional causes, such as

incentives like: subsidies and low tax rate.

2020, Bhave AP In the article “FDI in IT and ITeS in India International Journal of

Future Generation Communication and Networking” cites the availability of trained and

technically skilled workers who are also fluent in English as a major development factor in their

research. In addition, supportive infrastructure facilities and a favourable business environment

are favourable pull factors for foreign direct investment. Mentioning favourable programmes by

government, online penetration, etc, among other causes.

2007, Patibandla M “Pattern of foreign direct investment in developing economies: a

comparative analysis of China and India'' explained how the industrial concentrations

influence the site of a MNC's choosing, causing economies to develop as a result of

agglomeration effects. They cite this as the reason why Bangalore has become a significant

24
computer sector foreign direct investment location. They point to two significant reasons, the

first of which is that it offers an advantage in the form of low-cost trained labour, and the second

of which is that it offers advantages in the form of high-tech clusters that contribute to urban

sprawl. The existence of these clusters led to an increase in the overall productivity of the huge

number of software engineers and programmers who were already located there.

2017, Ranjan V, Agrawal G. "FDI Inflow Determinants in BRIC Nations: A Panel Data

Analysis." Eurasian Journal of Business and Economics: This study examined the key

determinants of FDI inflows into the BRIC nations (Brazil, Russia, India, China) using panel

data from 1975-2012. For India specifically, they found that market size, trade openness, human

capital availability and infrastructure quality were significant drivers of FDI. The authors

highlight India's large pool of skilled IT professionals as a major pull factor, especially for

investments in technology and software services.

2011, Sahoo P. "Transit and the Wider Economic Benefits of Vertical and Horizontal FDI."

In Global Trade and Poor Nations: The Poverty Impacts and Policy Implications of

Liberalisation. Eds. Zampetti A, Tok E: analysed the locational determinants of different types

of FDI - vertical (factor-cost driven) and horizontal (market-seeking). For India, the study found

vertical FDI was attracted by low-cost skilled labour, while horizontal FDI targeted the large

domestic market. It cites India's comparative advantage in human capital, especially for

IT/software services, as a key factor underpinning vertical efficiency-seeking FDI by

25
multinational firms in this sector. However, inadequate infrastructure acted as a constraint on

FDI relative to other attractive destinations.

2015, Narula R, Guimon J. "The Investment Development Path in a Globalised World:

Implications for Eastern Europe." Eastern Journal of European Studies:

This study examined the shifting patterns of outward and inward FDI in countries at different

development levels. For developing countries like India, they found inward FDI was attracted by

the availability of low-cost skilled labour combined with an emerging domestic market. As

countries develop their technological capabilities, they transition from being hosts to sources of

FDI. The authors highlight India's strengths in the software services sector built on its human

capital base.

2012, Vijayakumar N, Sridharan P, Rao K. "Determinants of FDI in BRICS Countries: A

panel analysis." International Journal of Business Science & Applied Management:

Looking at determinants of FDI into the BRICS nations, this study found market size, labour

costs, infrastructure and economic stability were significant factors. Specifically for India, they

note the availability of skilled human capital at low cost as a key advantage, along with the

liberalisation policies that opened sectors like telecommunications to foreign investment.

2010, Athreye S, Kapur S. "Introduction: The internationalisation of Chinese and Indian

firms-trends, motivations and strategy." Industrial and Corporate Change:

26
This work examined the internationalisation strategies of firms from China and India through

outward FDI and exports. For Indian IT/software firms, they highlight how the abundant supply

of low-cost engineering talent enabled a successful export-oriented strategy initially, followed by

establishing offshore delivery centres through FDI to be closer to clients.

2008, Banga R. "Drivers of Outward FDI from Asian Developing Economies." University

Library of Munich MPRA Paper: The paper analysed motivations for outward FDI from

several Asian economies including India. For the Indian IT sector, access to skilled human

resources and creation of offshore delivery capabilities were found to be primary drivers of

investments into regions like the US and Europe. Cost advantages, existing diaspora linkages,

and market-seeking motives facilitated this OFDI.

5. Research Objectives:

1. Analyse the rising amount of FDI in the computer hardware and software industry.

2. Focus on the Indian states which have brought in the maximum foreign investment and

check on the availability of infrastructure & skilled labour.

3. Discuss the relationship between the mentioned factors and the overall success of the

computer industry, which is a major source of FDI attraction.

4. Pinpoint the effect of Foreign Direct Investment on the computer’s hardware and

software sector as a factor for India's economic development.

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6. Research Methodology:

The research conducted was based on the descriptive research design, whose main goal is to

describe the properties of a particular event or group. The endeavour was to ascertain the growth

rate and trajectory of India’s FDI in computer hardware and software industries. For the study,

secondary data were used from reputable institutions such as government sites, journals,

academic journals, and industry reports which were used to address the research questions. These

sources are widely accepted as the authority on the trend of FDI in India, thereby the credibility

of the study is maintained.

Despite the usage of secondary data implying the possibility of low cost and accessibility to large

amounts of data, this research method as well had its shortcomings. For instance, the data were

from the pre-existing studies, and this, in turn, limited the researchers control over the quality

and accuracy of the data derived. Also the lack of some data combined with incomplete or

unavailable data could have potentially influenced the results. Despite the existence of

limitations, the use of secondary data was considered suitable for this study and steps were taken

to curb these limitations through reliable sources and thorough analysis.

28
7. Research Data Analysis & Interpretation:

Investors from all around the world are looking to the Indian software industry because of its

proven track record of success and growth. As was previously discussed, the computer hardware

and software industry received a total of US$44.91 billion in FDI inflows (representing 10% of

overall FDI inflows) between April 2000 and March 2020. As per data from the Industry and

Commerce Ministry, it attracts the second-most foreign direct investment (FDI). (Fig. 1)

Fig. 1: FDI inflow in computer software and hardware

Technologically advanced facilities for the software sector are provided by STPs. In an effort to

address the challenges faced by the software industry, the Software Technology Parks of India

(STPI) was founded in June 1991. To facilitate trade in the information technology sector, they

offer essential services such as high-speed Internet access and streamlined clearance procedures

29
through a single point of contact. They offer a variety of support services, including an

incubator. Import duties, central excise tax, and similar levies may be waived in some cases. In

addition, STPs can accept a full 100% of FDI. By instituting the Software-Technology Park

(STP) and Electronic Hardware Technology Park (EHTP) Schemes have significantly boosted

software and hardware exports. The computer software and hardware industries have received a

much-needed boost thanks to STPI. STPI operates in 60 locations around the country of India.

Fig. 2: Rank and % with total FDI inflow

Having access to qualified workers is viewed as crucial to the growth of the software industry.

The proportion of the population aged 18 to 23 enrolled in higher education is what is known as

the GER ratio. The growth of the skill-based economy depends on the talents of this

demographic. A greater GER ratio is indicative of skilled labour in the computer software and

hardware business, which is likewise a skill-based sector.

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 Fig. 3: STPI Centers
This research unveils the lack of engineers working in the software and hardware industries,

indicating a focus of engineering schools attention to these two sectors which will undoubtedly

lead to higher involvement rate by engineers in these local ecosystems. It evaluates these factors

boosting this demand, primarily in the software area, where the workforce is made available to

skilled personnel. The research looks into the Indian states that receive high Foreign Direct

Investment in computer software and hardware, using Software Technology Parks of India

(STPI) centres as infrastructure characterises an area. Not only that, it also uses extensive

methods such as the gross enrollment rates in higher education and the number of technical

institutions which offer Engineering degrees as measures of skills availability.

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 Fig. 4: GER in higher education

More engineers are needed in the software and hardware industries, and the presence of

engineering institutions helps with that. The software business has benefited from an abundance

of available skilled labourers and engineers. The presence of these enabling elements is

analysed, along with the Indian states that have attracted the most foreign direct investment

(FDI) in the computer software and hardware sector. The quantity of STPI centres in a given

state is a proxy for the quality of its underlying infrastructure. The gross enrolment rate in higher

education and the number of technical and engineering institutes in the state that produce

engineers are both stated as indicators of the availability of skilled labour.

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 Fig 5: No of engineering colleges

The FDI which invests in India's Software and Hardware Sectors predominantly targets

Karnataka, Delhi, Maharashtra, Tamil Nadu and Andhra Pradesh. These states are better

exhibited in terms of the quality of STPI centres, the rate of GER in higher national education,

and the number of engineering institutes, among others. Two-third of 60 STPI centres come

together to have GER at 21 while at the same time Tamil Nadu motors to 49% of GER in tertiary

education. Apart from this, these states also have 43% of India's engineering academic

institutions. The fact that they prove to be superb in the entire measurement comes to confirm

that they present an attractive prospect for FDI.

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34
Proportion of the five major RBIs by region in terms of FDI equity inflows for computer hardware and
software from January 2000 to December 2018

Rank Reserve Bank States FDI Equity % with total

of India Included Inflow Amt. (USD FDI inflows
Regional million) for software &
Office hardware

1 New Delhi DELHI, PART OF 8,694.32 24.26

UP AND
HARYANA

2 Mumbai MAHARASHTRA, 8,662.82 24.17

DADRA &
NAGAR
HAVELI,
DAMAN & DIU

3 Bangalore KARNATAKA 7,762.90 21.66

4 Chennai TAMIL NADU, 1,983.65 5.53

PONDICHERRY

5 Hyderabad ANDHRA 1,459.79 4.07

PRADESH

TOTAL 28,563.48 79.69

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8. Conclusion & Recommendations

Conclusion

India's economy, and the computer and electronics industry, in particular, have benefited greatly

from FDI. Foreign direct investment (FDI) has helped boost technology, create jobs, and expand

exports in this industry in several countries.

Recent years have seen an explosive expansion in India's computer and hardware sector, thanks

to rising demand for IT services internationally. The Indian Brand Equity Foundation (IBEF)

estimates that the industry would be worth $287 billion by 2022, expanding at a CAGR of

13.7%. The availability of competent labour, supportive government policies, and a welcoming

investment climate have all contributed to the sector's explosive rise.

Foreign direct investment (FDI) has been a major factor in the expansion of the computer and

hardware industry. Foreign direct investment (FDI) into India was $72.39 billion in 2020-21,

according to data from the Department for the Promotion of Industry and Internal Trade

(DPIIT). Specifically, the software and hardware industry received 44% of the overall FDI.

India's computer hardware and software industry is open to foreign direct investment, although

36
there are restrictions and hurdles to overcome. Several hurdles must be overcome in order to

optimise the potential benefit of FDI. They include regulatory challenges, infrastructure

challenges, cultural differences, skilled labour shortages, protection of intellectual property

rights and strong competitiveness.

Simplifying regulatory frameworks, investing in infrastructure, investing in skilling,

strengthening IP rights protection, promoting public-private partnerships, and encouraging

research and development are all steps that the government can take to address these issues and

increase the likelihood of FDI in the computer and hardware sector.

The efficiency of the investing process can be enhanced by streamlining regulatory procedures,

which can decrease the bureaucratic hurdles faced by foreign investors while trying to get

necessary permissions and licences. The sector's growth potential can be increased by investing

in and improving the underlying infrastructure. An increase in foreign direct investment (FDI) in

an industry can be achieved by closing the skills gap through training and education

expenditures.

Improving safeguards for IP rights will encourage overseas investment in India's information

technology industry. By encouraging private investment and stimulating new ideas, public

private partnerships can help attract both domestic and international capital. Innovation and

economic development in the sector can benefit from increased funding for R&D efforts.

In conclusion, foreign direct investment (FDI) in India's computer and hardware sector has been

37
a major factor in the country's rapid economic expansion and improvement. Foreign direct

investment (FDI) has played a key role in the sector's rapid expansion in recent years. But to

fully realise its potential, Investment in the sector must overcome certain obstacles. The Indian

government can take steps to address these issues by streamlining regulations, enhancing

infrastructure, funding skill development, protecting intellectual property, fostering

public-private collaborations, and supporting R&D. By taking these steps, the industry would be

able to continue growing and developing along with India's economy.

Recommendations

India's economic growth and development have been fueled in large part by Investment in the

country's computer hardware and software industries. Some suggestions for optimising the

benefits of foreign direct investment in this area are as follows:

Make It Easier for Foreign Investors to Get Permits and Licences The Indian government should

take steps to make it easier for international investors to get permits and licences. So,

entrepreneurs can save money and time while entering this market and making investments.

The government's attention should be directed towards enhancing infrastructure such as the

distribution of energy, the accessibility of transportation networks, and other forms of

communication. Because of this, the industry's expansion prospects will improve, and more

international investors will be drawn to the market.

The government should allocate money to training and skill training initiatives to produce an

38
army of IT experts. The increased availability of trained workers is necessary to attract more

foreign direct investment in the industry, and this will help to close that gap.

Protecting intellectual property should be a top priority for the government, which should

endeavour to bolster existing protections and create new, more robust enforcement measures to

combat infringement and forgery. Because of this, foreign investors will feel more comfortable

putting money into India's information technology industry.

The government should support public-private partnerships to boost economic growth and

technological progress. The result will be an atmosphere more open to partnerships between

domestic and international investors in the information technology industry.

Incentives, such as tax breaks and other forms of financial support, should be provided by the

government to boost R&D in the IT sector. This will encourage new ideas and accelerate

industry expansion.

In sum, FDI in India's computer software and hardware sectors has the potential to significantly

boost the country's economic growth and development. India may reach its full potential if its

government prioritises streamlining regulations, upgrading infrastructure, training its workforce,

protecting intellectual property, forging public-private partnerships, and supporting scientific

inquiry. By taking these steps, the sector would be able to continue growing and developing

along with India's economy.

39
9. References

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❖ Floyd, D., & McManus, J. (2006). The role and influence of Foreign Direct Investment on the

development process: the case of the software industry in Romania, China, India and the

Philippines. Global Business and Economics Review, 8(1-2), 119-132.

❖ Bhave AP. FDI in IT and ITeS in India. International Journal of Future Generation

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❖Patibandla M. Pattern of foreign direct investment in developing economies: a comparative

analysis of China and India. International Journal of Management and Decision Making

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❖Vyas, A. V. (2015). An analytical study of FDI in India. International Journal of Scientific and

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❖A. Muthusamy, S. Karthika. (2019) Sector-Wise Performance of FDI Equity Inflows in India.

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❖https://www.ibef.org/exports/electronic-and-computer-software-industry-in-india

❖https://dpiit.gov.in/sites/default/files/COMPUTER_SOFTWARE_&_HARDWARE_ii _18.pdf

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❖ https://www.icsi.edu/media/webmodules/CSEET/CSEET_EBE.pdf

❖ https://timesofindia.indiatimes.com/topic/us-fdi/news

❖ https://www.investindia.gov.in/foreign-direct-investment

❖https://theprint.in/ani-press-releases/indias-electronics-goods-exports-surges-49-per

cent-in-April-December-2021/814474/?amp=

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