India is the top choice for companies looking to outsource R and D with an offshoring business there expected to grow 23 percent to USD21 billion by 2012 and a talent pool in its largest hub, Bangalore second only to Silicon Valley, according to a study by a management consulting firm. The number of outsourced R and D centers in India has leapt from 180 in 2000 to 594 this year, according to the first report on Indias R and D centers from Zinnov . The huge talent pool in India has been fueling that growth, Zinnov said in its report.

About 140,000 engineers currently work in Indias R andD centers and another 110,000 are working for companies that serve them, a larger group than previously believed, the company reported. The engineering talent pool in Bangalore, Zinnov reported, is second only to that of Silicon Valley.

The India Semiconductor Association released a report in April projecting the design sector there will grow by more than 21 percent during the next three years to USD10.96 billion. It estimated about India employs about 130,000 engineers, the vast majority of them in software.

India is attracting and retaining more of its native technical workforce, according to the Zinnov report. About 30,000 of Indias engineers have returned in recent years from jobs in the U.S. The number of graduates from IIT and other top Indian universities relocating to the U.S. is on the decline, it said.

The maturing talent pool is driving an increase in the sophistication of jobs handled in the India R andD centers. About ten percent of the projects in the centers now involve full souptonuts development of a new product, a slice that is expected to increase to 30 percent by 2012, according to Zinnov.

The report estimates the cost per employee in India grew at 16.2 percent between 2005 and 2007. However, Zinnov expects the cost growth to slow as pay raises and real estate prices moderate in the future.

At the Design Automation Conference earlier this year, the president of one of Indias R andD firms estimated engineers salaries in India could rise to the levels of counterparts in the U.S. within a decade.