One of the biggest advantage India has on the software and services front is the cost factor. Gradually due to pressure on companies to hire, retain talent the cost advantage is taking a major hit.
Productivity levels in most organizations are either stagnant or have improved only marginally. One of the main reasons for stagnant productivity levels is the failure of most of the organizations in harnessing the energy of the new hires. New hires are either absolutely unproductive in the first 6-8 months or contribute very little. A lot of time goes in ensuring that this ramp up happens quickly and also to the levels of satisfaction that meet needs of all the stake holders involved. Since software and services are predominantly team driven, a weak link can disturb the whole equation and create chaos. One also see's a lot of complacency in people coming out of colleges - this could purely be due to the varied and many options that are available today to youngsters. ESOPs and other similar wealth creation schemes are not as attractive as they were some years ago. Also they are no longer practical for people at the bottom of the pyramid, the management would lose a lot of money in that.
All of these are pushing salary levels upward with an aim of attracting and retaining talent. If organizations are unable to work on these challenges and control the rising employee costs, the country would lose its biggest advantage - the cost advantage and would become as expensive as a Singapore (for example). Where does that leave India and thousands of Indians who are dependent on the services sector?