Highlighting India's achievements in the field of information technology, Prime Minister Atal Bihari Vajpayee on Thursday suggested an "effective alliance" between India and China in the IT sector and said it could become a "potent force" with far wider applications in South-South co-operation.

Dwelling upon the progress made by India in the field of software and China's leadership in the hardware sector, Vajpayee told an industry gathering in Shanghai that "our respective competence provides a natural ground for an effective alliance in the IT industry."

The strong international brand recognition of Indian IT firms was an asset that can enrich an Indo-China IT partnership, the prime minister said in a speech on 'India and China: Challenges and Opportunities in the IT Sector'.

Observing that technological advantage could be sustained only through research and continuous innovation, he said if countries like India and China were to concentrate on specific areas of their technological expertise, they could benefit far more than by competing across the spectrum.

"In combination, rather than in competition, Indian and Chinese IT industries can be a potent force," Vajpayee said on the penultimate day of his six-day official visit to China.

Technological upgradation and innovation was a high priority for India, the prime minister said adding, "while our hardware and communications structure is also growing rapidly, we have much to learn from in this area."

Referring to the Olympics being held in Beijing in 2008 Vajpayee said it provided a good opportunity for Indian and Chinese firms to work together.

"Our experience has shown that in mega events like these a substantial proportion of contracts awarded in the IT sector are actually subcontracted to Indian firms by contractors from the developed countries.

"Indian and Chinese firms could instead join up to provide state-of-the-art solutions at cost-effective prices, thereby also cutting out middlemen," he said.

Vajpayee said India and China could even plan a joint institutional mechanism, which could work out modalities for this.

He said both countries faced a common challenge of digital divide, which could be bridged by sharing experiences that the two nations may have collected to ensure IT access to all its peoples.

He explained to the audience India's national e-governance programme, which is seeking to link grassroot public services with those at the macro level and said here again the two nations could share experiences in optimising their e-governance systems.

Both India and China have emerged as IT leaders in their own ways, the prime minister said, adding, Indian business and industry have been exploring the synergies with China in the knowledge based technologies.

China, whose IT enabled population is expected to be 80 million within two years, itself was a huge market for Indian software companies specialising in services and solutions, Vajpayee said, adding that this was a "niche" area which even multi-national firms had not explored so far.

Making a mention of India's achievements in the IT field, he said the market capitalisation of Indian software industry has climbed steeply from $4 billion in 1999 to about $50 billion within four years while software exports have already reached $10 billion.

China's achievement in information technology was also impressive with its IT industry achieving a total volume of $25 billion in hardware alone.

Vajpayee said the main objective of his visit to China was to impart a fresh momentum to the comprehensive bilateral co-operation, which the two countries were seeking to build.    

The most significant decision in this direction, he said, was the agreement reached by him and his Chinese counterpart Wen Jiaba on setting up a joint study group to recommend to the governments concrete measures to boost bilateral trade and economic co-operation over a short to medium-term time frame.

The prime minister said if the economic co-operation between the two countries were to break out of the present traditional mould, "knowledge-based technologies need to occupy a far more prominent position in our economic interactions."