A prolonged military confrontation between India and Pakistan over Kashmir will seriously affect the software and back-office industries and foreign investment.

The perception that India is an unstable country, or in an unstable region, might hurt outsourcing

Richard Rothman US trade commissioner to western India

India's main software lobby group, the National Association of Software and Service Companies (NASSCOM), and US and Indian government officials have issued warnings about the continuing impact of the dispute.

"If the stand-off continues for a few weeks, we are going to have some business impact which eminates from postment and cancellation of business deals," said Kiran Karnik, president Nasscom told the BBC's World Business Report.

"If it goes on further, then I see customers off-loading mission critical work and looking for alternatives outside the country," he said.

India's software industry attracted about $453m in foreign investments in the financial year to March 2002.

Nuclear armed India and Pakistan are locked in a tense stand-off and have massed over one million soldiers on their borders.

Government warnings

"The perception that India is an unstable country, or in an unstable region, might hurt outsourcing," said Richard Rothman, the US trade commissioner for western India.

Randeep Sudan, special secretary to the Chief Minister of Andhra Pradesh, the capital of Hyderabad, said the government was worried foreign firms would put Indian investments on the backburner.

"Foreign investment deals that were almost finalised have now been put on hold because of the war fears," Mr Sudan told AFP.

"The darkening war clouds make India suddenly look like a risky investment proposition," he added.

Andhra Pradesh has become on of India's information technology hubs with a $375m software park that is home to hundreds hi-tech firms including Microsoft and Oracle.

Software outlook

The IT and back-office industries have been India's most important sectors for creating hundreds of thousands of skilled jobs.

India's software service exports rose 29% last year, to $7.5bn, the fastest growing sector, and accounted for 16% of overall exports.

Hundreds of multinational companies have outsourced their back-office operations to India because of the huge pool of English-speaking, computer-literate workers.

NASSCOM estimates outsourcing to India saves companies up to 40% of their back-office costs.