MUMBAI (Reuters) - Tax changes for India’s rapidly growing outsourcing sector may attract more global firms to set up their own outsourcing operations in India, analysts say.

India’s $3.6 billion outsourcing industry, backed by its army of cheap, English-speaking skilled workforce, is seen jumping to $13.8 billion in annual turnover or nearly half of the global offshoring market by 2007. Foreign firms seeking cheaper accounting, payroll management and insurance claims processing are turning to India to take advantage of the country’s educated workforce and a growing telecom infrastructure.

The government issued a tax clarification last month, saying multinationals outsourcing their non-core business to India were exempted from taxes to avoid double taxation.

Global firms welcomed the ruling, although it has not removed all confusion. “This decision is eminently sensible, because it has removed a potential block on multinationals outsourcing to India,” said John Hodgson, offshore program director for Aviva Plc., which has plans to move 2,350 British jobs to India.

Roopa Sethuram, director of Deutsche Network Services, a fully-owned subsidiary of Deutsche Bank said: “We welcome the move by the Indian government which is clearly as per the double taxation avoidance norms followed globally.”

But the clarification has raised some doubts about what is taxable and what is exempt. Some industry experts said the tax authorities’ explanation sought to include a part of the foreign company’s global income for tax purposes in India. A survey carried out by consultancy firm Ernst & Young said that 58 percent of the activities outsourced to India were considered non-core, and were therefore not taxable. And although core business outsourcing was lower, the tax clarification could introduce doubt in the minds of potential outsourcers, some said.

Among them are several banks, insurance companies and accounting firms that have plans for operations in India, where salaries for business graduates are as little as a fifth of those in New York and London.

Meanwhile, the National Association of Software and Services Companies said in its annual strategy report that jobs in the booming software services sector are estimated to grow 23 percent in the year to March 2004, as the sector benefits from outsourcing by global clients. The showpiece sector, which includes high-end technology consulting, back-office and call center work, is expected to employ some 813,500 people at the end of March, up from 661,000 a year ago.

The number of jobs in the information technology and back-office services sectors has multiplied five-fold over seven years, the report said. Exports from the industry, whose main market is the U.S., are forecast to rise between 26 and 28 percent to around $12 billion, up from $9.5 billion in the previous year.