* Publishers flocking to South Asia to tap local talent
* Growing middle-class, rising literacy, incomes spur sales
* All 'Big Six' global publishers now have Indian operations
By Henry Foy
JAIPUR, India, Jan 28 (Reuters) - A hunt for home-grown South Asian literary talent is drawing Western publishing houses to India, snapping up a new generation of writing for a local market out-performing the West and with huge growth potential.
Twenty years ago, South Asia's place on the literary map was marked by writers such as Salman Rushdie and Rohinton Mistry: authors of South Asian descent writing in the West for predominantly Western readers and Western acclaim.
Now, publishing houses are searching out local talent to tap the Indian market, where a swelling middle class, rising literacy and income levels and an enormous youth population is seen driving double-digit sales growth for decades.
"In terms of being fully present here, that's books by Indian writers on Indian subjects for an Indian readership, rather than just saying 'we do this stuff in London and New York and you'll like it too'," said Simon Littlewood, international director at the Random House Group, a British-based publisher owned by German media conglomerate Bertelsmann.
Physical book sales in India rose an annual 38.2 percent in the first ten months of 2012, according to data from media consultancy firm Nielsen, against a 13.6 percent decline in sales in the United States during the same period.
India's total publishing market is worth an estimated 100 billion rupees ($1.86 billion), according to the Federation of Indian Chambers of Commerce and Industry (FICCI), with English language books accounting for around a quarter of that.
The U.K.'s publishing industry is worth around 3.2 billion pounds ($5.06 billion), according to a 2011 report by the London-based Publishers Association.
"If you look at what is actually selling, the top positions are being taken by... books that are of this culture," said Littlewood. "The local readership is craving stories of itself."
South Asian writers such as Jeet Thayil and Mohammed Hanif featured strongly at the Jaipur Literature Festival that concluded on Monday, the region's largest that in six years has become an important fixture in the global industry's calendar.
At the five-day event, New Delhi-based Thayil was awarded the DSC Prize for South Asian literature and India's U.R. Ananthamurthy and Pakistan's Intizar Husain were shortlisted for the International Man Booker Prize for Fiction.
"It's a wonderful time to be in India for writers," said Rahul Pandita, a non-fiction author based in New Delhi. "The middle class is becoming conscious about what is happening in their immediate vicinity... in their back yard."
Lured by growth that currently stands at around 30 percent, according to FICCI, foreign publishers have flocked to set up operations in India, following pioneer Penguin, a unit of Pearson PLC, which entered in 1985.
Bloomsbury Publishing launched its Indian business last September, and Simon & Schuster, a unit of CBS Corp , became the last of the "Big Six" publishers to open an Indian division in 2011, joining HarperCollins, a unit of News Corp, Hachette, a unit of France's Lagardere Sca , Random House and Macmillan.
"It's pretty virgin territory (for local authors)," said David Godwin, an agent who represents best-selling authors such as Arundhati Roy and Vikram Seth. "There are more and more publishers coming over here, it's a very interesting time."
Overall, demand for books in India is still small. Random House's Littewood says the market for English books is similar to that of New Zealand, a country with 4.5 million people.
"But New Zealand's market is not getting any bigger. India's will. India will boom," said Littlewood, who is based in London. "Playing the long game is what it is all about."
Roughly 80 percent of India's 1.2 billion people are younger than 45, according to census data, offering publishers a huge pool of growth potential, while the country's literacy rate stands just below 75 percent, up from 52 percent in 1991.
To tap that potential, publishers are searching for writers such as Mumbai-based author Avni Doshi, whose 'Girl in White Cotton' this month won the Tibor Jones South Asia Prize, an award open only to unpublished South Asian writers.
"The backdrop is India, the people who read the book will be Indian," said Doshi, the second winner of an award targeting raw South Asian writing talent. "It speaks to the market that (publishers) are here looking for new writers, new voices."
$1 = 53.6950 Indian rupees $1 = 0.6327 British pounds