The investment would be one of the single largest an information technology company has made in India, a country of 1 billion people with a robust economy that Microsoft Corp. has long viewed as a potentially huge market.
"We are keen to grow Microsoft activities in India," Gates told reporters. "The growth in employment for Microsoft will be more in India than the United States."
A substantial part of the money would go to creating a Windows operating system designed specifically for India and available in nine Indian languages. That could help Microsoft fend off challenges from cheaper open-source operating systems like Linux, which has made deep inroads in India.
Half the money would go to improving Microsoft's research and development capabilities, including the creation of a new facility in the southern city of Bangalore, India's technology hub, the company said in a statement.
Indian Information Technology Minister Dayanidhi Maran said the investment was "an indicator of the value that Microsoft attaches to its development and R&D activities in the country."
On a previous visit to India in 2002, Gates announced similar plans for $400 million in investments.
On Wednesday, he called the company's progress since then "fantastic," and said, "That's part of the reason we are able to make such a strong and increased commitment."
Gates' announcement was the latest in a string of recently announced investments in India by American technology firms.
On Monday, chip-maker Intel Corp., based in Santa Clara, California, said it planned to invest more than US$1 billion in the next five years to expand its operations in India and invest in local technology companies.
Cisco Systems Inc., based in San Jose, California, said in October it plans to spend US$1.1 billion in India over the next three years.
Earlier this year, Microsoft opened a research center in the southern city of Hyderabad, its fourth such facility worldwide. The Bangalore center is to be opened next month.
The company also plans to nearly double its work force in India by adding 3,000 jobs over the next three to its existing pool of 4,000 here, Gates told business leaders earlier in the Wednesday.
Microsoft's efforts in India are aimed at narrowing the digital divide by creating products that are not only affordable for the poor, but also address their "unique needs," he said.
Some of the ideas he raised included making a mobile phone work as a computer, and a television as a monitor. He suggested developing computers that respond to speech, in various languages rendering keyboards unnecessary.
"India is a place where breakthroughs like these are necessary and will take place," Gates said.
The company also said Wednesday it plans to put aside funds for computer education and training, including adopting 100 schools, and supporting an Indian program to offer computers and training at 100,000 centers across the country.
Gates' visit comes at a time when many Indian companies are increasingly turning toward open source operating systems, particularly Linux, as a low-cost alternative to Windows.
Open source operating systems allow users to copy, distribute and modify the program's code, and are relatively cheap compared to proprietary systems like Windows, which does not allow users to modify its secret code.
U.S. computer firm Red Hat Inc., a distributor of Linux software, announced Wednesday it bought out its Indian partner and plans to invest $20 million in the country over the next few years.
While exact figures are hard to come by, a survey of Indian companies by Network Magazine released in June found that nearly 40 percent use Linux to run their servers. The magazine polled 340 companies, and offered no margin of error.
However, Microsoft insists its market share in server operating systems grew from 57 percent in early 2004 to 65 percent in late 2005. During his previous visits, Gates has downplayed the Linux threat.