FOREIGN DIRECT INVESTMENT (FDI) IN INDIA INFORMATION TECHNOLOGY Mr. A. KARKUVELRAJ Assistant Professor of Commerce, K.R.

COLLEGE OF ARTS & SCIENCE,

K.R. NAGAR, KOVILPATTI 628503 ak.svpr@gmail.com Cell No: 7502244350

Mr. M. NALLAKANNU Assistant Professor of Commerce, K.R. COLLEGE OF ARTS & SCIENCE,
K.R. NAGAR, KOVILPATTI 628503
nallakannu@gmail.com

Cell No: 9750775050

ABSTRACT Foreign Direct Investment plays a vital role in the economic development of any country not only the developing country but also to developed and newly industrialized countries. As every developing country in the world recognizes the importance of FDI to its economic development, laws, regulations and rules are being imposed or modified to harvest bilateral benefits from FDI. In this study, theoretical knowledge and feasibility of FDI in India in comparison with the other countries are studied. In addition, the contribution of Information Technology (IT) industry to the Economy of India is investigated and further analyzes significance of the FDI Inflows in IT Sector since 2007 and relating the growth of IT Sector. Finally, observation and suggestions are launched based on the investigation and findings in the study. Keywords: FDI, IT, NIC.

INTRODUCTION Information technology (IT) industry in India has played a key role in putting India on the global map. IT industry in India has been one of the most significant growth contributors for the Indian economy. The industry has played a significant role in transforming Indias image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. The industry has helped India transform from a rural and agriculture-based economy to a knowledge based economy. Information Technology has made possible information access at gigabit speeds. It has made tremendous impact on the lives of millions of people who are poor, marginalized and living in rural and far flung topographies. Internet has made revolutionary changes with possibilities of e-government measures like e-health, e-education, e-agriculture, etc. Today, whether its filing Income Tax returns or applying for passports online or railway e-ticketing, it just need few clicks of the mouse. Indias IT potential is on a steady march towards global competitiveness, improving defense capabilities and meeting up energy and environmental challenges amongst others. IT-ITeS sector in India, with the main focus on increasing technology adoption, and developing new delivery platforms, has aggregated revenues of USD 88.1 billion in FY2011, while generating direct employment for over 2.5 million people. Out of 88.1 billion, export revenues (including Hardware) has reached USD 59.4 billion in FY2011 while domestic revenues (including Hardware) of about USD 28.8 billion.

OBJECTIVES OF STUDY:

To Study the FDI inflows in Indian Information Technology Sector from FY 2007
FY 2011

To Study the relationship between Information Technology growth and Indian

Economy. IMPORTANCE OF THE STUDY The flow of FDI in Indian IT Sector is boosting the growth of Indian economy, this sector contributing the large share in the growing GDP of India. This Sector attracting a significant portion of total FDI in Indian Economy and it has shown especially in the second decade (2000 2010) of economic reforms in India this contribution of FDI in this sector stimulating the economic growth or not. This knowledge thrust of every research scholar creates the interest in conducting this study. GOVERNMENT INITIATIVES: After the economic reforms of 1991-92, major fiscal incentives provided by the Government of India and the State Governments, like, liberalization of external trade, elimination of duties on imports of information technology products, relaxation of controls on both inward and outward investments and foreign exchange, setting up of Export Oriented Units (EOUs), Software Technology Parks (STPs), and Special Economic Zones (SEZs), has enabled India to flourish and acquire a dominant position in worlds IT scenario. In order to alleviate and to promote Indian IT industry, the Government of India had set up a National Task Force on IT and Software Development to examine the feasibility of strengthening the industry. Venture capital has been the main source of finance for software industry around the world. In line with the international practices, norms for the operations of venture capital funds have also been liberalized to boost the industry. The Government of India is also actively providing fiscal incentives and liberalizing norms for FDI and raising capital abroad.

FINANCIAL ASSISTANCE While the underlying theme of 2010 was that of steady recovery from recession, thanks to the accelerated recovery in emerging markets, worldwide spending in IT products and services increased significantly in 2011. In 2011, Indias growth has reflected new demand for IT goods and services, with a major flow in the use of private and public confuse and mobile computing on a variety of devices and through a range of new software applications. High inflow of FDI in the IT sector is expected to continue in coming years. The inflow of huge volumes of FDI in the IT industry of India has not only boosted the industry but the entire Indian economy in recent years. Foreign direct investment (FDI) inflow rose by more than 100 per cent to US$ 4.66 billion in May 2011, up from US$ 2.21 billion a year ago, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). This is the highest monthly inflow in 39 months. Foreign technology induction is also encouraged both through FDI and through foreign technology collaboration agreements. India welcomes investors in Information Technology sector. Greater transparency in policies and procedures has made India an investor friendly platform. A foreign company can hold equity in Indian companys up to 100%. RESEARCH & DEVELOPMENT: To support Research & development in the country and promoting Start ups focused on technology and innovation, a weighted deduction of 150% of expenditure incurred on inhouse R&D is introduced under the Income Tax Act. In addition to the existing scheme for funding various R&D projects have been funded through new scheme like Support International Patent Protection in Electronics & IT (SIP-EIT), Multiplier Grants Scheme (MGS). The government has initiated the setting up of an Open Technology Center through NIC aimed at giving effective direction to the country on Open Technology in the areas of Open Source Solutions, (OSS), Open Standard, Open Processes, Open Hardware specifications and Open Course-ware. This initiative will act as a National Knowledge facility providing synergy to the overall components of Open Technology globally.

REGULATIONS After the economic reforms of 1991-92, liberalization of external trade, elimination of duties on imports of information technology products, relaxation of controls on both inward and outward investments and foreign exchange and the fiscal measures taken by the Government of India and the individual State Governments specifically for IT and ITES have been major contributory factors for the sector to flourish in India and for the country to be able to acquire a dominant position in offshore services in the world. The major fiscal incentives provided by the Government of India have been for the Export Oriented Units (EOUs), Software Technology Parks (STPs), and Special Economic Zones (SEZs). CHALLENGES Cyber security and quality management are few key areas of concern in todays information age. To overcome such concerns in todays global IT scenario, an increasing number of IT-BPO companies in India have gradually started to emphasize on quality to adopt global standards such as ISO 9001 (for Quality Management) and ISO 2007 (for Information Security). Today, centers based in India account for the largest number of quality certifications achieved by any single country. India aims to transform India into a truly developed and empowered society by 2020. However, to achieve this growth, the sector has to continue to re-invent itself and strive for that extra mile, through new business models, global delivery, partnerships and transformation. A collaborative effort from all stakeholders will be needed to ensure future growth of Indias IT sector. We will need to rise up to the new challenges and put in dedicated efforts toward providing more and more of end-to-end solutions to the clients to keep the momentum going. India is now one of the biggest IT capitals in the modern world and has presence of all the major players in the world IT sector. HCL, Wipro, Infosys and TCS are few of the household names of IT companies in India. FUTURE PROSPECTS Globalization has had a profound impact in shaping the Indian Information Technology industry. Over the years, verticals like manufacturing, telecom, insurance, banking, finance and lately the retail, have been the growth drivers for this sector. But it is very fast getting clear that the future growth of IT and IT enabled services will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. The near future of Indian IT industry sees a significant rise in share of technology spend as more and more service providers both Indian and global target new segments and provide low cost, flexible solutions to customers.

By 2015, IT sector is expected to generate revenues of USD 130 billion (NASSCOM) which will create a transformational impact on the overall economy. IT spending is expected to significantly increase in verticals like automotive and healthcare while the government, with its focus on e-governance, will continue to be a major spender. INDIAN IT-BPO INDUSTRY FY2012 is a landmark year while the Indian IT-BPO industry weathered uncertainties in the global business environment, this is also the year when the industry is set to reach a significant milestone aggregate revenue for FY2012 is expected to cross USD 100 billion. Aggregate IT software and services revenue (excluding hardware) is estimated at USD 88 billion. Key Highlights during FY2012

Milestone year for Indian IT-BPO industry-aggregate revenues cross the USD 100
billion mark, exports at USD 69 billion

Within the global sourcing industry, India was able to increase its market share from
51 per cent in 2009, to 58 per cent in 2011, highlighting Indias continued competitiveness and the effectiveness of India-based providers delivering transformational benefits

 Export revenues (including Hardware) estimated to reach USD 69.1 billion in FY2012
growing by over 16 per cent; Domestic revenues (including Hardware) at about USD 31.7 billion, growing by over 9 per cent

Software and services revenues (excluding Hardware), comprising nearly 87 per cent
of the total industry revenues, expected to post USD 87.6 billion in FY2012; estimated growth of about 14.9 per cent over FY2011

Within Software and services exports, IT services accounts for 58 per cent, BPO is
nearly 23 per cent and ER&D and Software Products account for 19 per cent

The industry continues to be a net employment generator - expected to add 230,000

jobs in FY2012, thus providing direct employment to about 2.8 million, and indirectly employing 8.9 million people

As a proportion of national GDP, the sector revenues have grown from 1.2 per cent in
FY1998 to an estimated 7.5 per cent in FY2012

The industrys share of total Indian exports (merchandise plus services) increased
from less than 4 per cent in FY1998 to about 25 per cent in FY2012

While the global macroeconomic scenario remained uncertain, the industry exhibited
resilience and adaptability in continually reinventing itself to retain its appeal to clients

Embracing emerging technologies, increased customer-centricity, deepening focus on

new markets, adopting new business models are some successful growth strategies followed by the industry IMPACT ON INDIA'S GROWTH IT-BPO sector has become one of the most significant growth catalysts for the Indian economy. In addition to fuelling Indias economy, this industry is also positively influencing the lives of its people through an active direct and indirect contribution to the various socioeconomic parameters such as employment, standard of living and diversity among others. The industry has played a significant role in transforming Indias image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. The industry has helped India transform from a rural and agriculture-based economy to a knowledge based economy.

Key Highlights during FY2011

India A trillion dollar economy; GDP growth rate projected at 9 per cent for 2011 Fast emerging as a growth story driven by a growing middle class, consumer
spending, and technology innovation

Increasing adoption of technology and Telecom by consumers and focused

Government initiatives leading to increased ICT adoption

Source: NASSCOM Indian IT Service Exports Over the years, Indian IT service offerings have evolved from application development and maintenance, to emerge as full service players providing testing services, infrastructure services, consulting and system integration. The coming of a new decade messengers a strategic shift for IT services organisations, from a one factory, one customer model to a one factory, all customers model. Central to this strategy is the growing customer acceptance of Cloud-based solutions which offer best in class services at reduced capital expenditure levels.

FDI Inflows: India 3rd most preferred country in World United Nations Conference on Trade and Development (UNCTAD) published its World Investment Report for 2012 which outlined that FDI in 2011 exceeded pre-economic crisis levels. More importantly, the report ranked India as the 3rd most preferred economy for FDI after China and US. The comprehensive study surveyed more than 179 companies and it emerged that the top 3 most favorable hosts for FDI remained constant in 2011 as compared to the previous year. Indias rank remained unchanged at 3rd overall and 2nd amongst all Developing and Transition Economies, only after China. India is expected to remain in that position for next 3 years. Top prospective FDI Destinations (2012-2014)

In South Asia, India emerged as the leading economy attracting inflows that accounted for more than 20% of all FDI in the region. This surge contributed to stronger inflows into South Asia after a stop-gap slide during the 2009-10 economic downturns. The report however did not ignore the play of political influence and mentioned that political risks and obstacles to FDI are the challenges that countries like India are facing. Foreign companies including the worlds largest retailer Walmart are sitting on the fence waiting for the government to come to a consensus on allowing FDI in retail. In 2011, PM Manmohan Singh had announced that India would be open to 51% FDI in retail. This announcement was met with opposition and has since been stalled as a certain section of politicians consider over the possible effects on small time kirana store owners and businessmen. Just this week, retail stocks including Koutons Retail, Provogue, Shoppers Stop and V2 Retail spiked as speculations emerged that the government would formally give the big thumbs up for FDI in retail later this month. Indias top ranking in this report comes at the back of March 2012 which witnessed highest ever FDI inflows of $8.1 billion as compared to $1.07 billion in March 2011.The top sectors at the receiving end of FDI as services, telecom, construction and power amongst others. The announcement of a $7.2 billion deal between RIL and BP was made in February 2012. The World Investment Report 2012 also pointed out that India had the highest contribution to FDI outflows among all other Least Developed Economies (LDI), ranking ahead of China and South Africa. Total FDI outflows from Indian amounted to about $14.8 billion.

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ET recently discussed how Indian companies are digging out business opportunities in Latin America to tap into overseas domestic markets. The likes of Godrej, Jindal Steel, Shree Renuka Sugars, Infosys, Wipro, Mahindra & Mahindra, Suzlon and TCS have presence in countries like Argentina, Peru, Brazil, Mexico, Chile, Columbia and other Latin American countries. It is believed that apart from large domestic markets, proximity to North America could also be one of the driving factors behind India Inc favoring Latin America as a business destination. Despite the Vodafones recent Rs. 11,000 crore tax evasion tiff with the government, despite the delay in policies around FDI in retail and despite criticism of bureaucratic hurdles by a certain steel magnate based in UK, India Inc still remains one of the top destinations for FDI. If all goes according to highlighted trends in the World Investment Report 2012, India Inc could be set for a flurry of economic activity with FDI pumping vitals into the dollar starved economy. Contribution of India's IT Industry to Economic Progress The contribution of India's IT industry to economic progress has been quite significant. The rapidly expanding socio-economic infrastructure has proved to be of great use in supporting the growth of Indian information technology industry. The flourishing Indian economy has helped the IT sector to maintain its competitiveness in the global market. The IT and IT enabled services industry in India has recorded a growth rate of 22.4% in the last fiscal year. The total revenue from this sector was valued at 2.46 trillion Indian rupees in the fiscal year 2007. Out of this figure, the domestic IT market in India accounted for 900 billion rupees. So, the IT sector in India has played a major role in drawing foreign funds into the domestic market. The growth and prosperity of India's IT industry depends on some crucial factors. These factors are as follows: India is home to a large number of IT professionals, who have the necessary skill and expertise to meet the demands and expectations of the global IT industry. The cost of skilled Indian workforce is reasonably low compared to the developed nations. This makes the Indian IT services highly cost efficient and this is also the reason as to why the IT enabled services like business process outsourcing and knowledge process outsourcing have expanded significantly in the Indian job market. India has a huge pool of English-speaking IT professionals. This is why the English-speaking countries like the US and the UK depend on the Indian IT industry for outsourcing their business processes. The emergence of Indian information technology sector has brought about sea changes in the Indian job market.

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The IT sector of India offers a host of opportunities of employment. With IT biggies like Infosys, Cognizant, Wipro, Tata Consultancy Services, Accenture and several other IT firms operating in some of the major Indian cities, there is no dearth of job opportunities for the Indian software professionals. The IT enabled sector of India absorbs a large number of graduates from general stream in the BPO and KPO firms. All these have solved the unemployment problem of India to a great extent. The average purchasing power of the common people of India has improved substantially. The consumption spending has recorded an all-time high. The aggregate demand has increased as a result. All these have improved the gross production of goods and services in the Indian economy. So in conclusion it can be said that the growth of India's IT industry has been instrumental in facilitating the economic progress of India. TOP 10 FDI CITIES IN INDIA HSBC has recently stated in a research that FDI inflows are expected to be diverted from China to ASEAN member countries like India. It is expected that sectors like railway, insurance, freight, banking, and forestry. However, there are several roadblocks to Indian cities receiving good amounts of foreign direct investment with infrastructural issues like rail and road network. The regulations also need to be relaxed for more international companies to get interested about investing in India. Other factors like global economic conditions could act in favor of Indian cities. The developed markets are growing slowly and countries like India offer convenient and economic labor. Both these factors can influence the pendulum in their favor. The 2012 attractiveness survey done by Ernst & Young 2012 states that the leading cities in India such as Bangalore, New Delhi, Pune, Mumbai, and Chennai draw 42 percent from the investment related projects that come to India from outside the country. They also generate 36 percent of the jobs that are created in India from these projects and account for 28 percent of the aggregate worth of such projects. The other cities in question are also performing creditably as far as foreign direct investment is concerned and taking several steps to smart up their economy so as to enhance their viability for potential investors.

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Bangalore Bangalore is a global hub especially in the service sector. The areas where it has performed the best are information technology, biotechnology, and engineering. The city offers a couple of policies namely Millennium Biotech Policy and Millennium IT Policy. Both these plans offer a wide range of benefits for investors thus making it an attractive destination for the tech companies especially. From 2007 onwards the capital of the south Indian state Karnataka has drawn 474 investment centric projects that have generated at least 1,10,140 jobs. Other major areas of advantage for the city are its infrastructure, which is of a really good quality and workforce which is competent and well trained. New Delhi New Delhi is the leading business destination for companies operating in the service industry especially in information technology and information technology enabled sectors. Consulting is also an important name in this regard. A number of international organizations also prefer to open their branch offices in this city. From 2007 to 2011 it has drawn approximately 305 projects from international companies that have helped in generating at least 34,100 jobs. Pune The industrial base in Pune is really substantial and the manufacturing sector has already received a number of investments from companies based outside India. The city is also rising in stature when it comes to information technology and software related services. From 2007 to 2011 the city has generated in excess of 70,700 jobs from 248 projects that have come from outside India. Mumbai Mumbai is regarded as India's commercial capital. From 2007 to 2011 the city has received 461 projects that have helped create at least 54,900 jobs. Services and manufacturing are the main sectors that have interested the potential investors as far as Mumbai is concerned. Other important areas are energy, software, transport, and banks and related financial entities. The state government has created several policies for domains like biotechnology, information technology, e-governance, tourism, and infrastructure so that more investors can be attracted. There are several special economic zones in the city as well, which serve a similar purpose.

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Chennai Within 2007 and 2011 Chennai was able to create 1,08,708 jobs thanks to 338 investment projects from outside the country. Automotive sector is the major area of strength for Chennai with special concentration in automobiles and making, developing, designing, and testing of railway coaches. The state government has also come up with several policies to make sure it remains an attractive proposition for investors. Hyderabad Hyderabad remains one of the major destinations for foreign investors in India. It provides the biggest piece of its state's GDP. In 2011 the city collected INR 7,00,000 million through revenues as well as 33.33 percent of the aggregate revenue from taxes for the entire state. In the same period its per capita income was INR 44,300. The city, along with its suburbs, also has maximum amount of special economic zones in the entire country. OBSERVATION AND SUGGESTIONS Growth in the size of the international capital market will open up increasing opportunities for India to attract foreign direct and institutional investment, but a substantial improvement in infrastructure and elimination of most of the bureaucratic barriers will help India in attracting a greater share of FDI flows. Mobilization of Indias emigrant population could have momentous impact on the inflow of FDI in 2020. Throughout the study, India Economy is projected by paying attention to the FDI inflows and Information Technology Industry. The credit goes to technical young peoples and English- speaking scientific professionals for the success in India's software-led IT industry. For further strengthening the industry, the Government has stepped forward with more qualitative institutes. Actually, India is producing around million well-qualified engineers annually in various science and technology disciplines. With this Human intellectual (or) knowledge capital in hand, it will be, no doubt, the biggest destination for the follow-source suppliers of MNCs or TNCs around the world. The two main target countries are US and UK even though leading OECD countries are in the priority list. Low-wage labor in India is the most outstanding strength compared to those of the other countries not only in the region but in the whole world. What it needed in the country is to lessen the rigid regulatory measures applied to the investors. India is now fully digitized. However, the most fundamental infrastructure of Electricity is not fully yet to come.

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CONCLUSION In the aftermath of formulating Vision 2020, India, currently, is leading in fields like software technology, pharmaceuticals, space, biotechnology, energy and participating actively in other science and engineering atmospheres. As mentioned in this paper, India has great potentials in attracting millions of employment opportunities for its nationals from all developed nations especially from OECD countries in IT and IT-enabled services. Not so far away from now, MNCs and TNCs will certainly come and invest their IT-related businesses and industries in India more than ever before. REFERENCES: (1) Chakraborty .C; Economic Reforms, Foreign Direct Investment and Its Economic Effects in India , Kiel Working Paper No. 1272 , March 2006. (2) Government of India: Manual on FDI in India, May 2003. 3) Sader. F: Attracting Foreign Direct Investment into Infrastructure, FIAS occasional Paper 12, World Bank, 2000. (4) World Investment Report, 2012. IMF. (5)Gupta, Dr. S.P: Report of the Committee on India Visions 2020; Planning Commission, Government of India, New Delhi, December 2002. (6)A. Panagariya: Rigid Labor Laws; a Minor Barrier to Growth; Economic Times, India, September 26, 2001. WEBSITES: http://www.nasscom.in/indian-itbpo-industry www.nasscom.org http://business.mapsofindia.com/fdi-india/policy.html http://economywatch.com/business-and-economy/software-industry.html http://www.economywatch.com/india-it-industry/economic-progress.html

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