The Indian outsourcing industry has been handed a $1 billion (£505 million) tax break in a move designed to accelerate the migration of Western jobs to the subcontinent amid signs that the sector is slowing.

The Indian Government unexpectedly extended a tax holiday for the country's IT sector, which was to expire next year, to 2010.

Tata Consultancy Services, the largest Indian IT exporter, said that the tax holiday extension would “strengthen the growth of the industry, which has already delivered enormous benefits to the economy”.

India's largest private sector employer recently said that it would give away some work on large contracts in an effort to cajole large banks and other key clients buffeted by the US sub-prime crisis into signing new contracts.

Som Mittal, the head of Nascom, the IT industry lobby group, said: “We are pleased that the extensive follow-up done by us with the PM's Office, ministries of IT, finance and commerce, among others, has provided this interim relief to the industry.”

The Indian tax break is likely to increase the pressure on jobs in the City. Wages for computer programmers have spiralled upwards in London in recent years amid fierce competition among banks and a dearth of domestic talent.

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