This, when approved, will be a sharp rise from the existing norm of $25 million or 50 per cent of the foreign exchange earnings. According to government sources, a decision has been taken in principle keeping in mind the current market capitalisation of infotech companies.

"We have in principle acceded to the request which came from the software industry as several software companies have been doing rather well and a formal notification will be issued after the new government takes charge," the sources said.

The notification could be expected as early as end of October or early November, he indicated. However, there are a few other demands of the industry which were still under consideration, he indicated. National Association of Software and Services president Dewang Mehta saidthat this was a welcome move. He confirmed that Nasscom had taken the initiative to get the ceiling hiked.

Pointing out that the current ceiling needed to be relaxed to facilitate easier acquisitions abroad, Mehta said, "One of the major growth strategies for the software industry in the next two years would be through acquisition of companies abroad. Apart from organic growth, the current market capitalisation also gives us the unique opportunity to acquire companies in India or abroad," he said.

Due to the Y2K sentiment, prices of many overseas IT companies which Indian companies want to acquire are at hovering at lower levels. Therefore we cannot wait till the next budget and want the government to take a quick decision on the issue, Mehta said.

It may be recalled that upon the recommendations of the national IT task force, Reserve Bank of India had last year accorded a blanket approval to software companies for acquisition of IT companies abroad subject to a maximum investment of $25 million.

Thisis subject to the condition that the cumulative software exports or foreign exchange realisation by the Indian company during the past three years should exceed $25 million.

"The government announcement in 1998 was a welcome measure, but today, the $25-million limit is not enough and needs to be enhanced considerably. Prior approval condition sometimes restricts the flexibility required, enhances the transaction cost and creates an inability to commit to an acquisition," said Mehta. More importantly, a buyer company often carries out acquisitions through stock swap route these days and not necessarily through cash or reserves, he pointed out.

Hence, the software industry demanded that they should also have the liberty to fund overseas acquisitions through the issue of an American depository receipt or a global depository receipt, or even out of free cash flow. "They should have freedom to pay for the acquisition through debt and to source the debt independently. As the liability to pay the debt is that ofthe company, no liability would devolve upon the country," said Mehta.

These measures would put Indian software companies on par with software companies in the United States which make acquisitions as a matter of routine and not as an exception, said Mehta.

The scrip of top software companies touching new heights in recent months has made the sector the star performer on the bourses in recent months. The current market cap of IT sector crossed Rs 1,00,000 crore on Thursday.

Of this, the market cap of top five companies Wipro, Infosys, NIIT, Satyam and Digital Equipment alone is estimated to comprise over Rs 75,000 crore. If the market cap of privately-held top IT company Tata Consultancy Services were also to be included, it would be well above Wipro at between Rs 35,000 crore and Rs 40,000 crore, taking the total market cap figure to 1,40,000 crore.

The trend is likely to accelerate further with the market doing well and many top companies investing larger resources in R&D to move into e-commerceapplications and products. Several IT companies have also come out or plan to come out with initial pubic offerings.

According to industry sources, top companies such as NIIT, Infosys, Satyam and Wipro are keen to make acquisitions abroad. Of these, Infosys is believed to put aside between Rs 130 crore to Rs 260 crore for acquisitions, while the figure is around Rs 435 crore for NIIT.

With the next phase of growth clearly linked to mergers and acquisitions abroad, it is likely to become a major strategy for the Indian software industry in the coming months.