Threefold increase in FDI signals rapid growth for IT sector in India

Covid-19 has paved the way for the automation of processes across the value chain by global businesses, leading to increased demand for India’s IT companies.

May 31, 2021

Foreign Direct Investment (FDI) in the IT sector rose to $USD 26.14 bn in the year 2020-21, as per data from the Department for Promotion of Industry and Internal Trade.

The sector accounted for around 43 percent of the total $USD 59.63bn foreign inflows into India this year.

Part of the growth has been attributed to the production-linked incentive scheme and Make in India campaign for the manufacture of IT hardware in India.

Foreign investors have been investing in Greenfield and brownfield projects in the country.

India’s IT sector has been growing rapidly over the last one year following demand for its services across the globe as companies look at increasing digitalization of their products. This demand has also  led to a threefold increase in foreign direct investment (FDI) in computer software and hardware to $USD 26.14bn in 2020-21 from $USD 7.67bn in 2019-20 and $USD 6.41bn in 2018-19, according to data from the Department for Promotion of Industry and Internal Trade. Out of the total $USD 59.63bn foreign inflows of India in the year 2020-21, the technology sector (both hardware and software) accounted for around 43 percent.

Experts have attributed this rise in the FDI to the recent production-linked incentive (PLI) scheme and the Make in India campaign for the manufacture of IT hardware in India. Compelled by the lockdown, educational, corporate and even healthcare institutions were faced with the need to develop alternate systems for the running and remote access to these services. This led to the advancement of digitalization and expanded use of artificial intelligence (AI) for the automation of processes across these sectors. Additionally, it also brought an increased demand and sale of laptops, wifi routers etc to facilitate remote learning for students and Work from Home for employees. Remote access to healthcare through online consultations and orders for medicines were enabled through health tech platforms such as Practo. Sectors such as agriculture and food processing were able to compensate for the shortage in the workforce during the lockdown and ensure the contact-free supply of their goods through the aid of technology.  Consequently, various multinationals and other foreign investors made increased investments in a number of greenfield and brownfield projects in the country, having witnessed the growth and the potential in these sectors.

As per a compilation by the India Brand Equity Foundation, some of the major FDI announcements in recent months are the following:

  • In February 2021, Amazon announced it would start manufacturing electronic devices in India from 2021
  • In November 2020, Rs. 2,480 crore (US$ 337.53 million) foreign direct investment (FDI) in ATC Telecom Infra Pvt Ltd. was approved by the Union Cabinet.
  • In November 2020, Amazon Web Services (AWS) announced it would invest US$ 2.77 billion (Rs. 20,761 crore) in Telangana to set up multiple data centres; this is the largest FDI in the history of the state.

All this has also translated into additional jobs being created in the sector. According to the annual review of FY2020-21 by the National Association of Software and Service Companies (Nasscom), the IT industry saw an addition of 1.38 lakh employees to the workforce on a net basis, increasing the total number of employees to 44.7 lakh.