Indian became a prominent destination for outsourcing in the services sector in the 1990s. Outsourcing to India started with the IT industry, which has responded to the changing market requirements by increasing the scale of operations and capability to handle complexity. The Indian software industry, according to Kris Gopalakrishnan, COO, Infosys Technologies Limited, has gone through the following four stages of development:

1. 1970s to early 1990s: There was a shortage of skills and cost was the prime driver for outsourcing to India. Companies focused on expanding their skill sets during this period.
2. 1994 to 1998: This was the most crucial time for IT outsourcing in India. The post liberalization reforms helped already existing companies speed up expansion. New companies also got support in the form of incentives from the government. The important tasks outsourced to India during this period were medium and large application projects on legacy migration and enterprise wide IT and problems related to Y2K syndrome. Companies focused on acquiring diverse skills and execution capabilities, along with achieving client delight trough productive and quality delivery of projects.
3. 1999 to 2001: While projects related to Y2K syndrome were outsourced on a large scale to India, companies started acquiring additional competence especially in enterprise resource planning and customer relationship management during this stage. The industry gave importance to a variety of business aspects such as achieve excellence in quality of output delivered, making investments in R&D, ensuring business continuity and financial stability, gaining world-class project management capabilities, expanding services to IT consulting by gaining domain skills and developing infrastructure for further growth.
4. 2001 to present: The industry now caters to large application development and maintenance needs of corporate across the world. Indian companies chalk out IT strategies for large corporations, and focus on providing end-to-end solutions. Indian companies are now in the process of aggressively gaining expertise for carrying out high end work such as R&D, architecture and business integration.

BPO in India has grown rapidly as compared to software services as the advantages offered by the country (low cost and abundant talent pool) were well known and tested in IT outsourcing. Most of the infrastructure required was already in place and companies needed to set the processes right to get BPO going in India. According to Mohanbir Sawhney, Professor, Kellogg School of Management, evolution of BPO in India has witnessed three prominent phases. These waves are:

1. Large multinational companies set up their captive centers in the country. American Express, GE and Citibank were among the pioneers which were followed by numerous banks, financial services, manufacturing companies, etc. These companies performed their back-office operations and customer services through these offshore captive centers.
2. The captive centers were followed by the establishment of start-up BPO operations by experienced professionals. Such companies were often backed by venture capital.
3. IT majors such as IBM ventured into Indian BPO market to tap the opportunity. These companies had experience in managing offshore IT operations which helped them in gaining an easy entry into the BPO market.