Setup an IT or Software Company in India

The IT Industry evolved as a sector in India during the 1990s. In the 1990s, the IT industry started with an export of around $100 million. The IT sector has seen rapid growth in the last few years as compared to other sectors in India. It is also the largest employer within the private sector. There are various reasons for this continuous growth but the main reason is the increased demand for video conferencing software, cloud-based software, and social media platform. Due to the Covid- 19 pandemic, the sale of these software has seen a massive jump.

A. Set up a Software Company in India

Setting up a Software company in India is not a lengthy process. As we all know the Government of India has launched the ease of doing business initiative to encourage and facilitate investment’s in India. Starting an IT business by incorporating a Private Limited Company is preferable and popular these days. Foreign national/businesses established outside India wants to do IT business in India can do so by setting up a Joint Venture or a Wholly -Owned Subsidiary in India. Below are the requirements in brief:

  • Object & Name – Two (2) proposed names of the company and the main Object to be carried out by the company must be given.
  • Subscriber and Director – A minimum of two (2) members are required to set up a company in India. They may be individual or body corporate. A minimum of two (2) directors are required to set up a company in India with at least one director being a resident of India (resident of India means the person who stays in India for at least 182 days in the previous year). He may be an Indian or Foreign citizen.
  • Digital Signature Certificate (DSC) – Digital Signature Certificate of the proposed director(s) is mandatory to file the online incorporation application for company registration in India.
  • Capital – There is no capital requirement for incorporating a private limited company in India. A company can be incorporated with INR 1. However banks ask for minimum INR 1,00,000 capital amount for activation of current account of the company having foreign nationals promoter(s).
  • MOA & AOA – The Memorandum of Association defines the main object and other objects of the company and Article of Association defines the governance of the company in India.
  • Registered Address – The Company must have a registered office from the date of incorporation.
  • Registration – After fulfilling all the requirements, Certificate of Incorporation will be issued by the Registrar of Companies (RoC).

B. Advantage of Setting up a Software Company in India

There are various advantages of setting up a Software company in India. Some of them are discussed below:

  • Growing Demand – After the economic reforms in the year 1991–92, the IT industry in India has grown rapidly. India’s IT sector is expected to reach US$ 100 billion by the year 2025.
  • Policy Support – The Government of India has taken several initiatives to promote the IT sector. In the Year 2020, the Government of India had released “Simplified Other Service Provider” (OSP) guidelines to improve the ease of doing business in the IT Industry, Business Process Outsourcing (BPO), and other IT-enabled Services.
  • Skilled workforce – There is no lack of talent, skill, and innovation in India. Hiring employees having skills, knowledge is not burdensome as India is home to millions of IT professionals.
  • Investments – The IT sector in India have attracted significant investment from various countries such as the USA, Japan, Singapore, etc. The IT sector in India ranks 2nd attracting the highest FDI inflows as per the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
  • Tax Benefits – The Government of India has given various tax benefits to the IT sector for Software Technology Parks of India (STPI) and Special Economic Zones (SEZs).

C. Some of the Top Software Companies Having Office in Delhi-NCR, India

Talking about Information Technology, no doubt the Delhi – NCR in India is the Technology hub. There are several IT Companies having offices in Delhi – NCR, India offering IT services to their customers. Thanks to the skilled workforce available in the country, infrastructure, easy transportation /connectivity, availability of resources, and also support from Government. Also, many entrepreneurs consider Delhi – NCR as the best location for establishing an IT company in India. Some of the Top IT Companies having Office in Delhi-NCR are mentioned below:

  • Tata Consultancy Services (TCS)
  • Infosys
  • HCL Technologies
  • Wipro
  • Microsoft
  • Coforge
  • Cadence Design Systems
  • Adobe
  • Oracle
  • SAP

D. Growth of IT Industry in India

The growth in the IT industry in India has seen an upward trend in recent years. Below are the data relating to IT Industry in India:

  • The IT industry in India has accounted for 8% of India’s GDP in the year 2020.
  • The IT industry in India is expected to contribute 10% to India’s GDP by 2025.
  • The IT sector market in India is projected to reach US$ 100 billion by the year 2025.
  • Exports from the Indian IT industry are expected to increase by 1.9% to reach US$ 150 billion in FY-21.
  • As per STPI (Software Technology Park of India), the software exports by its registered units increased by 7% YoY (Year-over-Year) to reach Rs. 5 lakh crore (US$ 67.40 billion) in FY-21 from Rs. 4.66 lakh crore (US$ 62.82 billion) in FY-20.
  • As per Gartner estimates, IT spending in India is estimated to reach US$ 93 billion in the year 2021 (7.3% YoY growth) & further increase to US$ 98.5 billion in the year 2022.
  • In Budget 2021, the Government of India has also allocated Rs. 53,108 crore (US$ 7.31 billion) to the IT and Telecom Sector.

*Reference – https://www.ibef.org/industry/information-technology-india.aspx (India Brand Equity Foundation (IBEF) is an Indian Government export promotion agency established by the Department of Commerce, Ministry of Commerce and Industry)

E. Foreign Direct Investment (FDI) in IT Sector in India

As per FDI Policy, the Government of India has allowed 100% FDI under Automatic Route in the IT sector in India. Foreign Companies invest in India especially in the IT sector because of the availability of skilled workforce, infrastructure, availability of resources, and various initiatives undertaken by the Government of India to promote the IT sector. Below are the data showing FDI inflows in the IT sector in India:

  • The Computer Software and Hardware sector in India ranks 2nd attracting the highest FDI equity inflows worth US$ 26,145 million in the year 2020-21.
  • The Computer Software and Hardware sector in India attracted cumulative FDI equity inflows worth US$ 71,056 million (13.42% of total inflows) between April 2000 and March 2021.
  • There is an increment of 240.74% of FDI inflows in the Computer Software and Hardware sector in India in FY 2020-21 as compared to FY 2019-20.
  • In the FY 2020-21 the state of Gujarat, India has topped the list of the states attracting the highest total FDI equity inflows with US$ 21,890 million.

*Reference – https://dipp.gov.in/publications/fdi-statistics

F. Market Size of IT Industry in India

The market size of the IT Industry has seen a sharp rise in the past 5 years. The Domestic Revenue of the IT industry in India is estimated at US$ 45 billion and Export Revenue is estimated at US$ 150 billion in FY – 21. Let’s have a look & understand it with a chart.

*Reference – https://www.ibef.org/industry/information-technology-india/infographic

G. Year-wise Projection / Comparison of FDI inflows in Computer Software and Hardware Sector in India

In FY 202-21 the Computer Software and Hardware sector in India has seen a tremendous growth as FDI inflows hike by 240.74% as compared to the previous financial year. To make it more clear let’s have a look at the table below showing year-wise comparison of FDI inflows in the Computer Software and Hardware sector in India.

*Amount in (US$ Million)

Year ( April-March)FDI Inflow% of Change Increment (Decrement) as compared to previous Financial Year
FY 2015-165,904157.14%
FY 2016-173,652(38.14%)
FY 2017-186,15368.48%
FY 2018-196,4154.26%
FY 2019-207,67319.61%
FY 2020-2126,145240.74%
*Reference – https://dipp.gov.in/publications/fdi-statistics

H. Covid – 19 Impact on IT sector in India

When in the Year 2020 the WHO declared Covid – 19 a pandemic and the Government of India imposes complete lockdown, the normal life of every section of people living in the country has been severely disrupted.

The Covid – 19 pandemic has opened up a lot of opportunities in the IT industry in India. We have seen how Covid – 19 has resulted in an unpredicted upward trend towards digitization in India. As per RBI annual report, some sectors such as transportation, hotels & tourism have been hardly impacted while other sectors such as agriculture, IT (Information Technology) have shown a sturdiness to the pandemic in India.

The increased digitization and the IT industry’s timely adaptation to work from home helped to keep up the IT industry’s growth amid the Covid-19 pandemic. During the Covid-19 pandemic, the increased demand for software, high-speed internet has given a boost to the IT industry in India. Also in the above table, we have seen how there is a  massive jump (240.74% as compared to the previous year) in FDI inflows in the Computer Software and Hardware sector in India in FY 2020-21.

I. Conclusion

After going through all these data it is clear that the IT sector in India is rapidly growing each year.  It is one of the leading contributors to the economy of India. Every industry has some pros and cons but it is important to see how that industry is growing year over year. Despite the Covid -19 pandemic, the IT sector is not impacted much as compared to other sectors. Growing demand also compels foreign investors to invest in the IT sector in India. This Industry will continue to grow in the future and it’s the best time to invest in the IT business in India.