By Steve Schifferes
Economics reporter, BBC News, Bangalore
Indian school children are enthusiastic computer users
In a dusty schoolroom on the outskirts of Bangalore, the battle for India's future in a globalised world is being waged.
Forty-five schoolchildren in year five (10-11 years old) cluster around 15 computers, helped by a young classroom assistant.
The 800 children in the GM primary school in Hebagodi get only one 45-minute-a-week period in the computer room - and even then they have to share, three to a computer.
Many of them come from poor homes where their parents are day labourers, and where the homes, far from having computers, may not even have electricity.
But their classroom assistant, Lakshami, says that there is never any trouble getting the kids to come to this class. Using the computers is always their favourite activity, and they are already surprisingly adept at it.
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They play special educational computer games provided by the Premji foundation (a charity set up by the owner of one of India's biggest IT services firms, Wipro).
She herself escaped from her role in the old economy, as a garment worker in Bangalore, when the Premji foundation paid for her to look after the computer classroom.
She says that, despite their poor backgrounds, when she asks the children what they want to do when they grow up, there is only one answer.
They all want to be software engineers and join the glittering world of Bangalore's hi-tech giants.
India's global leadership in the IT services industry, centred on Bangalore, is based on its rich human resources.
The country's 400,000 graduates in science and engineering each year - more than any other country in the world - give India a competitive advantage.
But with the global outsourcing industry still growing at breakneck speed, the Indian industry is worried about whether there will be enough skilled Indian software engineers in the future.
Nasscom, the Indian software industry association, estimates that by 2010, the Indian outsourcing industry could have $60bn worth of global sales, up from $23bn in 2006 - and that would still only be 10% of the potential market.
But if the industry is to triple its revenues, urgent action is needed now to increase the supply of skilled labour, Nasscom says.
It wants the government to provide more engineering places at university, and it has started its own scheme for an India-wide certification of IT qualifications.
Pressure on turnover
The tight labour market is already taking its toll on the industry.
The big three Indian software companies alone (Infosys, Wipro, and TCS) are looking to hire 100,000 new graduates this year, as their businesses continue to grow by 30% annually.
The problem is not so much hiring the skilled IT workers - Infosys gets 1.4 million applications a year, and can pick and choose - as retaining them after they have started.
As foreign multinationals continue to flood into India, the competition for experienced IT professionals is heating up.
Companies such as IBM Cap Gemini and Accenture, the main rivals to the Bangalore tigers, plan to transfer the bulk of their worldwide operations to India in the next few years and are desperate to hire staff.
Turnover rates at Infosys and Wipro are about 12%-15% a year - still lower than the Indian average, but rising steadily.
Infosys trains 10,000 graduates at a time at its Mysore campus
And to retain existing staff, Wipro has had to raise wages twice this year, by more than 20%.
Wipro's chairman, Azim Premji, says he is not worried - his company offers better opportunities than the foreign multinationals.
But industry analysts wonder whether the rising wage bill will eventually make Indian software companies uncompetitive in the world market. After all, lower labour costs are what gave them their initial advantage.
The Indian companies answer that it is their global production systems and their skills, not low wages, that give them comparative advantage.
But they are also hedging their bets.
All the Bangalore tigers have set up development centres in China, where they can employ software engineers for considerably less than they are currently paying their Indian staff.
The poverty challenge
In the long run, India's ability to expand its supply of IT engineers depends on improvements to basic education.
India's primary education system is still weak, especially in rural areas, where many girls drop out before completing school.
One third of all Indians are illiterate - and one half of all women.
The Indian government has pledged to make universal primary education available to all by 2040.
However, there are big regional differences.
The prosperous southern states like Karnataka, home of Bangalore, are well on their way to this goal, aided by donations from the Premji foundation.
But the numbers staying on in school, and literacy rates, are much lower in the poverty-striken Northern states such as Bihar and Rajathstan..
Secret weapon: B2B
The iiiT-B campus is in electronic city, opposite Infosys
At the other end of the educational scale, India's universities, while good at producing undergraduates, are weak at post-graduate education.
India has few PhD programmes in computer sciences, which means that many go abroad to study in the US or Europe - and often stay on.
But now, the Bangalore IT boom has persuaded many of them to return home.
Bangalore's city commissioner estimates that 40,000 non-resident Indians (NRI) have returned to Bangalore.
While they make up less than 10% of the IT workforce in the city, these B2B (Back to Bangalore) professionals often assume key roles in their organisations.
For example, Srini Rajam says that his highly successful start-up company, Ittiam, which is at the cutting edge of developing software for global consumer product firms such as Sony and Toshiba, is heavily dependent on attracting NRIs.
That is one of the main reasons he has been able to increase his staff from eight to 100 since 2001.
Megha Saini hopes to work on artificial intelligence at IBM
The presence of so many NRIs - many of whom come over initially on contract so that they can retain their higher, Western salary - has added pressure to salary levels at the top of Indian software companies, and the differential between Indian and Western rates of pay are narrowing.
The best and brightest computer students in India are now flocking to Bangalore's newest university, the International Institute for Information Technology (iiiT-B).
Set up with support from Infosys and other hi-tech companies, the iiiT-B aims to train Indian graduate students to world-class standards.
Its class of 120 students each year works closely with industry in one of the institute's labs, on projects such as IP multimedia (run with Hewlett Packard) or wireless networking.
Its highly ambitious young students are clear that they are competing in a global marketplace and their horizons are the world, not the Infosys campus across the road.
Among them is Megha Saini, aged 23. She is a final year student at iiiT-B and has won an internship to study at University of Trento, Italy in the winter term.
She says there is only one lab in the world where she wants to work - IBM's Toronto research facility.
"I am looking forward to apply the concepts of Multi-Agent Systems (my current area of research and this area is technically related to Artificial Intelligence concepts) to Autonomous Computing so that I get an opportunity to work in IBM Toronto," she told the BBC.
"I wrote a paper that got selected in AAAI Spring Symposium to be conducted at Stanford University which I am hoping to show to IBM researchers."
If these young people indeed represent India's future, then the West does have something to worry about after all.