India’s outsourcing valued at $60 billion by 2010

India’s IT and business process outsourcing services industry could be bringing in $60 billion by the year 2010, growing at more than 25% a year, according to a report released Monday.

However, the industry could face a shortage of half a million workers unless remedial measures in public education and corporate training are taken quickly, according to the report.

India’s software and services exports were $17.2 billion in the fiscal year ended March 31, 2005, up by 34.5% from the previous year, according to the National Association of Software and Service Companies (NASSCOM) of Delhi. NASSCOM and management consulting firm McKinsey & Co. released the findings jointly.

A large number of multinational technology and user companies are stepping up outsourcing to India. Microsoft announced last week that it was increasing staff in India from 4,000 to 7,000 over the next three to four years, while Dell said in April that it was increasing staff in the country to 10,000 by the end of this year. Aviva, a British insurance company, said Monday that its suppliers were increasing staff doing work for Aviva from 4,300 to 7,800 over the next two years in India and Sri Lanka.

The total addressable market for global offshoring is approximately $300 billion, of which $110 billion will be offshored by 2010, according to the NASSCOM-McKinsey report.

By 2010 the Indian IT and BPO services industry could directly employ approximately 2.3 million people, besides providing indirect employment to another 6.5 million workers, according to the report.

The industry employed about 1 million staff and provided indirect employment to 2.5 million people in the fiscal year to March 31 this year, according to data released by NASSCOM earlier this year.

However staff shortage could be a major bottleneck for the industry, according to the report. The skills and quality of the workforce needs to be improved, as only 25% of technical graduates are suitable for employment in the offshore IT industry in India, while only 10% to 15% of general college graduates are suitable for employment by the BPO industry, according to Jayant Sinha, partner at McKinsey & Co.

Urban infrastructure in India also needs to be improved as offshoring companies deal with various bottlenecks, Sinha said. Further growth of the industry will have to come from entirely new business districts outside the first- and second-tier cities, he added.

The report proposes setting 10 or 12 integrated townships in India with associated infrastructure like roads and international airports.