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India’s business process outsourcing (BPO) industry is forecast to increase its revenue this fiscal year by 15 percent to 16 percent, officials of the National Association of Software and Service Companies (Nasscom) said on Wednesday. Revenue increased by 6 percent in the last fiscal year ended March 31, 2010, despite the recession, according to Nasscom.

But there are still serious challenges ahead for the Indian BPO industry, including the crisis in the Euro zone in Europe. As business picks up, there is also concern that hiring and retaining top quality staff may be a problem for the BPO industry which includes Indian outsourcers as well as wholly owned subsidiaries of global services companies, and companies, including banks, that run their back offices from India. Before the recession, competition for staff had led to a wage spiral. By March this year, staff attrition was already 8 percent to 10 percent higher than a year earlier, said Som Mittal, president of Nasscom. Wages could rise by 10 percent to 20 percent by next year, Nasscom said.

There is also concern among Indian outsourcers about increased protectionism in the U.S., a key market. U.S. Senator Charles E. Schumer, announced earlier this month that he was introducing a bill that would help stem the flow of American jobs being outsourced abroad by imposing a per-call excise tax on companies that transfer domestic customer service calls to foreign call centers. Schumer’s legislation also requires that companies that transfer calls to foreign call centers disclose to the caller that their call is being transferred to a particular country.

Calls transferred to India from the U.S. constitute a very small proportion of the business of Indian BPO companies, and the bill if passed will have no impact on Indian BPO companies, Talwar said. While there is understandably concern in the U.S. about saving jobs, protectionist measures can at best be short term in effect, Mittal said. India’s BPO industry currently employs 1 million staff, while also providing indirect employment to 3.5 million people. The country’s BPO revenues have however been growing faster than employment, as companies have focused on more sophisticated services.

As demand for BPO services is booming, including from the domestic market, there is also greater interest in setting up service delivery centers in rural areas, Mittal said. The model, which has been tried so far mainly by NGOs, is now attracting outsourcers as well. About 60 percent of BPO employees in the cities currently come from small towns and villages, according to Nasscom.

Via PC World