The report stated that the success of Indian offshoring led to a growth rate of 30 per cent in the sector between 2003 and 2005, with an estimated 25 per cent growth per annum for the next five years.
McKinsey believes that such growth will fuel what it calls a "war for talent " which could grow as more Western firms try outsourcing for the first time.
The consultancy estimated that only one tenth of the potential of $300bn market for global offshoring is being tapped at present. The fastest growing areas are high value services such as medical, actuarial and research.
McKinsey said that labour shortages will pose a serious obstacle to India's ability to retain its lead in IT offshoring.
The industry currently employs one million people, a third of whom are in business process outsourcing, such as call centres. McKinsey predicted that this needs to increase to 2.3 million by 2010.
The news comes on the back of major plans for investment in the region by Microsoft and JP Morgan. Microsoft will add 3,000 jobs in India over the next three to four years, while JP Morgan will recruit 4,700 graduates in India by 2007.
The growth rate is also putting pressure on office space. Shortages are already evident in Bangalore, Hyderabad, Chennia, Mumbai and New Delhi.
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