India's position as the world's largest talent supplier is under serious threat. According to leading manpower consulting firm Watson Wyatt, that slot may be taken over by China before long. In fact, China is projected to have twice as much skilled labour as India shortly - a fact that goes against the conventional wisdom that India's abundance of skilled labour makes it ideal for outsourcing business processes.

The consulting firm gives three reasons for this: First, one of the main advantages India had vis-a-vis China is the much higher skill level among its women population. In fact, the percentage of skilled women living in urban areas at 14 per cent is close to that of skilled men at 16 per cent. The average annual growth rate in skilled women (7 per cent) is about 1.5 times higher than the growth rate in skilled men.

Yet, the irony is that Chinese women are much more likely to be in the workforce despite that country's lower percentage of skilled women in the total population. This is because the workforce participation rate is twice as high for Chinese women as it is for Indian women.

Only 25 per cent of skilled Indian women participate in the labour market, exposing a major shortcoming of India's talent pool. While Indian women represent 38 per cent of enrolment in higher education in 2004, the workforce participation rate for women remains very low, at about 18 per cent in urban areas.

The second reason is that China is pouring vast resources into education, and more Chinese young people are attending colleges and universities than ever before. Education is undergoing a massive transformation in that country where universities are building new facilities (30 new universities have come up in Nanjing alone in as many years). "Universities in China are coming up faster than hotels in Dubai," Watson Wyatt says.

By 2010, 23 million students will be attending Chinese universities, one million of whom will be highly-skilled graduate students. That's a remarkable progress from 6,00,000 such students in 1992 - a fact that prompted management guru Peter Drucker to remark that the greatest weakness of China is its incredibly small proportion of educated people. Not anymore.

By comparison, India's education system is largely at a standstill, with the percentage of young university students hardly rising. India's static enrolment, along with a similarly static investment of its gross domestic product into education, partially explains why China surpassed India's 3.1 million annual college graduates three years ago.

Third, the most popular areas of study in Chinese universities also tend to be the most in demand, such as engineering, management and science. Most universities are also aggressively building global links through regular international conferences, foreign visiting professorships and collaborations on degree programmes.

Compare that with India. The quality of education in the country's mushrooming private institutions continues to be a serious concern and the industry-academia linkages are growing only at a snail's pace.

But all's is not lost for India - yet. Watson Wyatt says there are essentially three areas where China has a lot of catching up to do with India.

For example, the immobility of labour in China. While there are no restrictions on mobility of talent in India, for some strange reasons, China still follows the "Hukou" system that discourages graduates and skilled or semi-skilled labour based in remote provinces from working in more developed areas. For example, a graduate from a second-tier city who wants to work in Shanghai will have to overcome considerable obstacles, including mobility restrictions. In general, employers are discouraged from hiring workers from other regions. As a consequence, many employers tend to hire mostly local graduates - a phenomenon that seriously compromises their search for the best talent.

The second area is the low proportion of Chinese students returning from study abroad. The study shows while the pace of Indian students returning home after higher studies abroad has been increasing due to better opportunities, it's exactly the opposite in China. For example, in 2004, almost 24,750 students returned to China after graduating abroad, while around 1,14,700 left the country that same year.

And finally, poor English skills will continue to be one the biggest obstacles to China's becoming the premier offshoring location for MNCs. If you take the mean scores of the Test of English as a Foreign Language, China's results are lower than India's in all subjects (although higher than worldwide averages), especially in listening comprehension.

These relatively low scores may be because Chinese students begin to study English later than students in India. Also, teachers and students focus more on exams than on assimilation of the language and far more attention is paid to reading and writing English than to speaking and listening.