Mobile services revenue in India is projected to grow around 18 percent a year, hitting US$37 billion by 2012, Gartner said Wednesday.

The growth will come from a rapidly proliferating rural market, low handset costs and lower tariffs, Gartner said.

India's mobile subscriber base is also set to exceed 737 million connections by 2012, growing around 21 percent annually. India will continue to be the second largest wireless market after China in terms of mobile connections, Gartner said.

Gartner's upbeat forecast about the Indian mobile services market follows its prediction last year that the market would grow to $25.6 billion by 2011, primarily due to lower tariffs and higher penetration of rural markets in India.

India had nearly 278 million mobile subscribers at the end of May after adding 8.6 million mobile subscribers during the month, according to the Telecom Regulatory Authority of India (TRAI).

Handset makers and mobile service providers view India's rural market as the next big opportunity. Nokia announced last month that it was working on micro-finance schemes to make handsets more affordable for India's rural masses and would also work to provide relevant content for rural people, such as agriculture prices and weather updates. Operators are also sharing infrastructure to lower the cost of services.

Gartner estimates that 60.7 percent of Indians will have mobile phones by 2012, up from about 20 percent now.

Driving those increases will be the entry of local consumer durable and electronics companies into the domestic mobile handset market, and falling handset prices, Gartner said. Vendors will continue to focus on sub-$25 handsets to capture market share, it added.

Revenue from data services will contribute significantly to the overall growth of mobile revenue in India, growing around 26.3 percent a year through 2012, according to Gartner.

Voice calls, which comprise 89 percent of revenue, will fall to an 85 percent share by 2012, Gartner added.

The IDG News Service is a Network World affiliate.