But the rupee's strength and a shortage of talent are major concerns for an industry that posted 33 percent growth in exports to 31.4 billion dollars in the year ended March 31, the National Association of Software and Service Companies said in its annual survey.
"The indicators continue to be positive with a potential addressable market of over 300 billion US dollars, driven by growth of existing business and new services opportunities," said Kiran Karnik, president of NASSCOM, as the industry lobby is known.
India remains the destination of choice for global information-technology sourcing because of its talent pool, management capability and security and quality focus, Karnik told a news conference in Bangalore, India's IT capital.
"But there are certain short- to medium-term challenges that need to be addressed swiftly," he added.
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"These include rupee appreciation, suitability of available talent and infrastructure development."
The rupee ended last week at 40.7 per dollar, up almost 10 percent since the start of the year and 14 percent in the past 12 months, denting the margins of a software industry that makes two-thirds of its revenue in US dollars.
India's showpiece sector is also facing a major talent crunch.
Dun and Bradstreet, the US-based provider of financial information, has estimated that the industry would face a shortage of 500,000 skilled workers by 2009 and more competition from emerging rivals such as China and the Philippines.
The software industry's strengths include project management and advanced English-language skills in which China still lags behind, said Lakshmi Narayanan, chairman of NASSCOM and vice chairman of Cognizant Technology.
"It is critical that we, as a country, take serious steps to increase quality and quantity of talent. To stay ahead of countries that are trying to catch up with us, we have to invest more in education," he added.
India's exports of information technology services grew 35.5 percent to 18 billion dollars in the year to March, with IT-enabled services and outsourcing expanding 33.5 percent to 8.4 billion. Engineering services and product exports clocked 4.9 billion dollars of revenue, up 23 percent over the previous year.
The overall software and related services sector is poised to grow 24 percent to 27 percent to reach 49-50 billion dollars in revenue in the current fiscal year, said NASSCOM.
The software sector contributes about 5.
2 percent to India's gross domestic product, directly employing more than 1.6 million and indirectly supporting six million people in related industries.
India's top three IT firms -- Tata Consultancy, Infosys Technologies and Wipro -- earned about 8.
7 billion dollars from exports in the last financial year, according to a separate survey by Dataquest magazine.
"The weakening dollar and stronger rupee weren't really felt by exporters until the latter half" of the year, Dataquest analyst and executive editor Shyamanuja Das said in a statement.
"It is only during the January-March quarter that the (dollar) decline accelerated," Das added. "This will really hit exporters hard this year.
"