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The case of India illustrates well how technological revolutions may bring unexpected opportunities for developing countries. To benefit from the recent outsourcing boom in ICT services, India's government has directed investments into the restructuring and expansion of the local ICT services sector, positioning the country among the most popular ICT services outsourcing destinations. Drawing on national innovation system theory and concepts of absorptive capacity, this paper questions the sustainability of India's success as a top ICT offshoring destination. In the immediate distance, eroding cost advantages and unsophisticated service exports are threatening India's top position. To avoid competition in the low-segments of ICT services exports, India would have to move up the value chain, requiring the expansion of the ICT services sector into higher spheres of software design and development. However, as this paper argues, the expansion of this industry is constrained by the enormous variation in inter-state levels of ICT education and infrastructure. The poor absorptive capacity of the remaining part of the country is found to severely limit the industry's expansion possibilities. As empirically shown, state efforts to build a learning system exclusively for the ICT sector have prevented a nation-wide investment in absorptive capacity. Therefore this paper proposes that resolving these inter-state disparities requires the development of learning capabilities outside the ICT industry; enabling the remaining economic sectors to absorb the benefits generated by the expansion of the ICT sector. However, until this aim is achieved, India's ICT sector may have long lost its competitive advantage. © 2010 by Nova Science Publishers, Inc. All rights reserved.