Interesting article on offshoring from Sramana -- Trend Radar 2008: Offshoring - Sramana Mitra on Strategy
A year back I would have disagreed with her, but with the learnings in the past one year, I think she is right on the count that in 5 years time the cost of living in Indian Metros would be comparable to that in the US.
However, if India has to stay on top then we have to develop ourselves into a product development industry rathar than a service industry. That would help India to maintain its niche in the IT industry.
And with lots of activities going on in Indian IT industry I have little doubt that India wont be able to make it.