What Software innovation has India done? Do you know of any compiler companies from here? Or any Operating System companies? How many linux kernel engineers does Infosys or TCS have? Both companies are sitting with billions in cash. Do you think any senior directors there are thinking - let's create a microchip, even if it's way behind Intel or AMD? I remember reading an interview of Bjarne Stroustrup - he said AT&T gave away their compilers to their competitors (like HP) knowing fully well it would strengthen them. Is any company in India on the same level as AT&T, who can see the bigger picture ? Maybe Tata's come close (not TCS). Indian senior management are like glorified buniyas - who when they put down 50 paise, expect Rs 1.5 back. It took Standard Chartered to come to India and sponsor a marathon. That should tell you a lot about senior management here.
On a larger scale is any Indian company thinking we can build a commercial aircraft? Only HAL builds fighters - but that's a govt company. Soon Microsoft is going to create an opportunity for everyone to erode their Desktop OS share by walling off developers? Do you think TCS or Infosys is building a Linux Distro like Canonical/Ubuntu? Do you think they have the balls to get into that market and try and take market share?
The fundamental thinking of India seems to be flawed. Everyone wants a piece of the outsourcing pie. Synergies and bullcrap like that. No products come from here. I believe we are already suffering a much worse fate than Japan. Videocon is a collaboration with a Japanese company (since the talk was about electronic majors from Japan). Where are the real indigenous products from India, so that we can have the same fate as Japan? The only advantage the 1 million "good" engineers you claim is cost. Once the cost advantage goes, people are going to be jobless, not bridging any gaps.
I went to 2 leading BPOs with my compilers for Survey Programming and Cross Tabulation. The VPs said the thought of writing such products never crossed their minds. They were not interested.
If you want to see the difference in Indian thinking - compare with Germany. Open source is available to everyone and that means countries too. I have read many articles about Germany using Open source in govt offices and there was an article about France and Libre Office.
India cannot go down the same road as Japan, because we dont have the products in the first place to go down that road.
I don't know if your "bridging the gap", means supplying engineers to other countries. If yes, then this is the typical thinking that creates the net negative cash flow in economies like ours.