India’s trade body for information technology industry and business process outsourcing sector, National Association of Software and Service Companies (Nasscom) said it expects the country’s IT-BPO industry to reach $70 billion mark by the end of the current fiscal following rise in demand for software technology products.

The year 2010 marked a period of revival for the $60 billion Indian IT industry with the global economy showing some semblance of normalcy after a period of prolonged turbulence.

India’s number one software services company Tata Consultancy Services (TCS) started the year on a positive note by posting good profits followed by its rival Infosys Technologies Ltd which followed suit, contrary to early indications of a drop in revenue.

Demand picked up significantly in US markets along with emerging vertical and geographic segments during the year, resulting in a 5.5 percent jump in overall industry revenue.

The trade body said the Indian government has emerged as one of the biggest growth verticals for the domestic IT-BPO sector as it is projected to spend about $5.5 billion (250 billion rupees) on information technology initiatives in the current fiscal.

Nasscom expects the domestic IT-BPO services sector to grow at a compounded annual growth rate of 14 percent over the next two years to $16.7 billion in financial year 2011 from $12.8 billion in 2009.

It expects the products industry to grow by over 11 percent in the same period.

Hiring activity in the sector was upbeat during the year. Software companies that had not only frozen hiring activity but also cut jobs a year ago due to a slowdown in demand are now positive in their outlook in India as well as in other offshore centres.

TCS has announced plans to employ more than 50,000 people during this fiscal, which is much higher than the forecast it had given in the previous year. Infosys plans to add about 20,000 people to its headcount by March 2011.

Experts believe the Indian IT industry is expected to hire about 200,000 people over the next one year even as attrition levels in the industry hover around 18 percent to 20 percent.

Protectionist sentiments in major markets like US and Europe rose following the impact of global recession.

The US House of Representatives passed a bill in August that effected a steep hike in visa fees for skilled workers. This was aimed at raising up to $600 million to beef up security along the US-Mexico border. However, this measure is likely to result in additional visa costs of $200 million to Indian companies every year.

Also, Ohio state in the US banned outsourcing of government IT and back office projects to offshore locations after president Barack Obama announced earlier this year tax benefits will be taken away from American companies that ship jobs overseas.

Slowdown in Europe continued although US, which is the largest contributor to the Indian IT sector's revenue, saw demand returning.

Currency fluctuations and a significant drop in new orders from the European region, the second largest market for Indian IT players added to the woes of the Indian IT companies.

Forex fluctuation has dented India’s competitiveness, Nasscom said, adding that “steps need to be taken to address India’s increased risk perception.”

Rising costs posed a tough challenge that is likely to continue in the year ahead. However, Vietnam and Philippines have emerged as strong competitors to Indian players with their cost-effective structures.