Newspaper Summary 010426

 

IT sector faces modest Q4 despite healthy deal pipelines

Sanjana B | Bengaluru

India’s IT sector is prepared for a steady but modest Q4FY26, as analysts highlight that selective demand, weak discretionary spending, and elongated decision cycles are offsetting early AI-led opportunities and healthy deal pipelines. Mid-single-digit expansion currently reflects a steady recovery for the industry.

ANALYSTS’ TAKE

• Tier-1 firms have indicated strong deal bookings.
• Enterprise spending remains selective.
• Sequential growth is likely to stay modest.
• Early AI-led opportunities are supporting modest growth.

Harshal Dasani, Business Head at INVasset PMS, noted that while Q4 demand appears stable, it is not yet broad-based. He explained that large deal pipelines remain healthy, driven by vendor consolidation, cloud transformation, and cost optimisation, with initial traction in AI-led projects adding a new layer of opportunity.

NO BREAKOUT

Dasani characterized Q4 as a "quarter of measured execution rather than a breakout". He observed that discretionary spending is returning unevenly and decision cycles remain elongated, particularly in the retail and BFSI verticals. Consequently, sequential growth is expected to stay modest, with revenues supported by deal ramp-ups rather than fresh spending. While controlled costs and lower attrition may stabilize margins, transition costs and pricing pressure could cap the upside.

STRONG DEAL BOOKING

Tier-1 companies have reported strong deal bookings in recent quarters, indicating that underlying demand remains intact even if revenue conversion is gradual. A report from BNP Paribas highlighted that deal signings hit a five-month high of 14 in February, up from 10 in December 2025.

Tushar Badjate, Director of Badjate Stock Shares, explained that the sector closed Q4 in a moderated demand environment, especially across global markets that contribute 70% of export demand. Enterprise spending was selective, with budgets focused on AI-led efficiency initiatives, cloud migration, and maintenance, while large-scale transformation programs were often re-scoped or deferred.

Large-cap firms delivered flat to low single-digit sequential growth with margins between 18-25%, while mid-tier firms outperformed them due to niche capabilities and AI integration.

Pareekh Jain, Founder and CEO of EIIR Trend, expressed optimism that the current quarter would be stronger than the last, supported by steady BFSI demand, accelerating AI momentum, and positive results from Accenture. However, he warned of rising concerns for FY27, noting that the Gulf conflict could drive up oil prices and trigger a second-order impact that might delay AI investments and general tech spending.

Bots take charge in the poll battlefield

From generating digital posters to decoding data, AI now powers political war rooms Sindhu Hariharan | Chennai

As campaigning for the Assembly polls intensifies, the war rooms of major political parties are leaning heavily on artificial intelligence (AI) to navigate a hyper-social media world. Once a niche technology, AI is now a mainstream tool used for recreating the voices of late leaders, producing targeted content, and analyzing public sentiment.

STRATEGY AND OUTREACH

• Strategic Tool: Digital marketer Shubho Sengupta observes that while AI was primarily a production tool for faster creatives in 2024, by 2026 it has moved to the strategy layer. It is now utilized for real-time constituency sentiment analysis and micro-targeted messaging.
• Efficiency: PR Shiva Shankar, the BJP candidate for the Ernakulam constituency, notes that AI brings a cost and time-effective dimension to outreach while enabling more informed, data-led strategies.

HOW PARTIES ARE USING AI

• Left Front (Kerala): To counter allegations of a supposed understanding with the NDA, the CPI(M) released an AI-generated explainer reel acting as a report card for the LDF government’s achievements over the past decade.
• DMK (Tamil Nadu): TRB Rajaa, Secretary of the DMK IT Wing, states the party uses AI to swiftly craft digital content and interpret feedback and data more effectively. However, he maintains that human intelligence remains the primary driving force in politics.
• BJP (Tamil Nadu): SG Suryah, President of the TN BJP Youth Wing, has a dedicated team using AI to create digital posters and video content in minutes through correct prompts. They also employ AI for booth analysis to automate workflows and generate reports on key constituencies.
• Congress: Deepak Joy mentions that while AI is useful for highlighting opponents' shortcomings, it must be used with care. Local teams are also being provided with analysis tools to help create specific campaigns.

Unrealised tax demands rise to ₹38 lakh crore by FY25-end

Sourashis Banerjee | Chennai

Tax authorities have continued to raise tax demands in both direct and indirect taxes, resulting in strong growth in unrealised tax demands in recent years. Budget documents show that these demands amounted to more than ₹38 lakh crore toward the end of FY25.

Direct Tax Dominance

A businessline analysis of Union Budget documents shows that these demands have been significantly higher in direct taxes, where they grew at a compound annual growth rate (CAGR) of 26% between FY20 and FY25. In contrast, unrealised indirect tax demands grew at a slower pace of 8.7% annually over the same period.

The growth in unrealised direct tax demands has been striking:

• Overall Increase: From ₹11 lakh crore in FY20, the figure rose to approximately ₹36 lakh crore in FY25, a three-fold increase.
• Income Tax: Unrealised demands alone reached ₹19 lakh crore in FY25.
• Corporate Tax: These demands stood at ₹16 lakh crore.

By comparison, unrealised indirect taxes reached ₹2.6 lakh crore in FY25, up from ₹1.7 lakh crore in FY20. This divergence suggests that the bulk of aggressive tax assessments is concentrated in direct taxes, raising concerns about structural issues in tax administration.

Litigation and Recovery Concerns

The inordinately high backlog suggests the possibility of frivolous tax demands being issued by the I-T department to meet revenue targets. With 44% of these demands under litigation, their enforceability is in question. Large demands often remain unrealised for years, suggesting overestimation at the assessment stage. This contrasts with indirect taxes, where collections are transaction-based and harder to dispute.

Recent & Undisputed Demands

A closer look reveals that more than half (56%) of unrealised direct taxes are not under dispute as of FY25. A large share of these demands is relatively recent:

• 21% of undisputed taxes have been outstanding for 1-2 years.
• 17% fall in the 2-5 year bracket.

Even among disputed taxes, the largest shares lie within the 1-5 year range. However, approximately 6% of undisputed taxes and 1.6% of disputed taxes have been pending for over a decade, indicating long-standing inefficiencies in resolution and recovery.

India to face pressure as US seeks plurilateral e-comm moratorium,

TRADE TIFF: New Delhi may need to align with Brazil and Turkey to safeguard policy Amiti Sen | New Delhi

US Trade Representative Jamieson Greer has announced that Washington will seek commitments from various countries to pursue a plurilateral e-commerce duties moratorium agreement. This move follows the actions of Brazil and Turkey, who "blocked" the extension of the existing moratorium at the WTO Ministerial Conference in Yaoundé, a development that is expected to place fresh pressure on India.

Experts suggest that New Delhi, which has long questioned the moratorium due to rising revenue losses and a lack of clear definitions, may need to align with Brazil and Turkey to safeguard its policy space and preserve its negotiating leverage. Greer expressed frustration that the WTO could not reach a consensus to make the moratorium permanent or even extend it for more than two years, specifically naming Brazil and Turkey as the two nations that blocked an extension until December 31, 2030.

WHAT IS IT?

The WTO e-commerce moratorium was first established in 1998 as a temporary, two-year agreement to not impose customs duties on electronic transmissions. Under this pact, while physical goods are taxed at the border, digital equivalents—such as software, e-books, and streaming services—remain duty-free. While it had been renewed every two years since its inception, the moratorium lapsed at the conclusion of WTO MC14 due to disagreements over its duration. Despite this, the USTR asserted that the US has secured commitments from dozens of countries and nearly all major trading partners to refrain from imposing tariffs on US digital transmissions.

‘COMMON SENSE AIM’

Greer stated that if the WTO cannot achieve this "common sense aim," the US will work outside of the WTO with all interested partners, inviting them to commit to a plurilateral agreement,. Unlike a multilateral deal, a plurilateral agreement involves only a subset of countries rather than the full WTO membership.

Parminder Jeet Singh, a founding member of the Just Net Coalition, described the end of the moratorium as a "historic moment". He noted that it marks an opportunity for developing nations to view their digital economies through the lens of digital industrial policies, proper regulation of foreign firms, and the collection of due taxes, as most value flows across borders will soon be digital.

Ranja Sengupta, Senior Researcher at Third World Network, India, argued that India should support Brazil and Turkey for standing up for the Global South, which has been losing billions in potential revenue. While she expressed skepticism about how a plurilateral agreement would function for those who stay out, she warned that there would be significant US pressure on developing countries to join if such an agreement moves forward.

What happens when CAD rises

Saumitra Bhaduri & Shubham Anand | Madras School of Economics, Chennai

The escalation of conflict in the Middle East has pushed global oil prices higher, exposing a familiar fault line in India’s external position. Despite robust domestic growth and contained inflation, the rupee has slipped to record lows and equity markets have turned volatile. This is a "flow story" overwhelming a "stock story": war-driven energy shocks and a stronger dollar have collided with thinner, more flighty capital inflows.

THE DISCONNECT

On paper, India’s macro story is reassuring: growth is projected at 7.4 per cent this fiscal, reserves are near $701.4 billion, and the current account deficit (CAD) is about 0.8 per cent of GDP. Yet the rupee fell by more than 5 per cent last year.

Ordinarily, a modest CAD is easily financed, but in 2025 foreign portfolio investors pulled back and net FDI softened as profit repatriation and outbound investment rose. With less "patient capital," the rupee became more sensitive to shifts in risk appetite; as oil buyers needed more dollars just as investors sought safety, the currency took a hit from both sides.

RUPEE DYNAMICS

Purchasing power parity (PPP) indicates where the currency tends to settle once shocks fade. Our pre-shock estimate placed the rupee roughly 18 per cent below PPP fair value. However, India’s adjustment towards PPP is slow, with a half-life of more than five years. In one year, only 13 per cent of the adjustment towards equilibrium is typically completed. This path is too slow and bumpy to offset a sudden oil-and-dollar shock.

THE TRANSMISSION

Because India imports most of its crude, pricier oil raises the import bill before quantities can adjust, widening the CAD. Multi-country evidence suggests that for oil importers, a 1 per cent real oil price shock can worsen the current account balance (CAB) by up to 0.08 percentage points (pp) of GDP over five years. For India, a sustained 10 per cent real increase in oil could translate into roughly a 0.8pp deterioration in the CAB over five years.

PATH FORWARD

Durable currency strength requires more than growth; it requires resilience in flow dynamics during stress.

• Near-term: Calibrated fuel-tax adjustments to smooth pass-through, deploying FX reserves to counter disorderly moves, and diversified sourcing.
• Medium-term: Attracting "stickier" capital, especially greenfield FDI, by maintaining a predictable policy regime and reducing policy uncertainty.
• Long-term: Raising export complexity and scale in manufacturing while accelerating energy security through strategic reserves and the renewables transition.

By turning recurring oil-and-flows vulnerabilities into managed risks, India can safeguard its currency through well-calibrated policy responses.

For a permanent ‘stabilisation fund’

S Adikesavan

The creation of an Economic Stabilisation Fund by the Finance Ministry represents a move toward establishing institutional mechanisms to respond to economic shocks. Finance Minister Nirmala Sitharaman noted that in an era of global uncertainty, India must equip itself with dedicated institutional buffers to ensure unforeseen disruptions do not derail the country's growth trajectory.

DEALING WITH CRISES

While many advanced economies have established Sovereign Wealth Funds (SWFs), these are typically intended for long-term asset management rather than the short-term macroeconomic stabilization envisioned for this new fund. Historically, governments have relied on expansionary fiscal policies, such as during the 2008 financial crisis and the Covid-19 pandemic, to cushion downturns.

In India, deficit financing during these periods was largely achieved through domestic currency borrowing, which insulated the economy from exchange rate risks. During the pandemic, fiscal deficits rose to over 9 per cent of GDP without destabilizing the economy, eventually tapering to about 4.5 per cent, suggesting that higher deficits can be managed under certain conditions.

FIVE STEPS FOR IMPLEMENTATION

To ensure the Fund is reliable, flexible, and transparent, the article proposes five foundational steps:

1. Legislative Framework: The Fund should be established with a statutory basis through Parliament, similar to the Monetary Policy Committee. While maintaining a clear structure, the government should have the authority to deploy funds swiftly in emergencies without prior approval.
2. Regular Annual Allocations: The corpus should be supported by annual allocations from the Union Budget. A target of ₹5 lakh crore (roughly 1.5 per cent of GDP) would signal a serious policy commitment.
3. State Participation: States should be encouraged to contribute in exchange for "drawing rights" during times of need. This mechanism could include special provisions for strategically vulnerable regions like the North-East, Jammu & Kashmir, and Ladakh.
4. Independent Governance: To insulate the Fund from political considerations, it should be managed by an independent board of trustees consisting of domain experts. Transparency should be maintained through annual reports tabled in Parliament.
5. State-Specific Contingencies: Complementary mechanisms should allow States to levy temporary, purpose-specific cesses through GST amendments to address local crises, using Kerala’s 2018 flood cess as a template.

As global uncertainties become the norm, building such institutional resilience is no longer optional but imperative for economic stability.

BJP promises ₹5 lakh cr investment for Assam

Guwahati: Union Finance Minister Nirmala Sitharaman released the BJP’s manifesto for the Assam Assembly polls on Tuesday, promising the protection of land, heritage, and dignity for indigenous people alongside a ₹5 lakh crore infrastructure investment.

SANKALP PATRA HIGHLIGHTS

The BJP’s Sankalp Patra comprises 31 promises, including:

• The recovery of encroached land from Bangladeshi Miyas.
• The implementation of a Uniform Civil Code.
• Ensuring the development of the State and providing employment opportunities for the youth.

Sitharaman stated that the manifesto was prepared based on a "decade of transformation" in the State, which she alleged the Congress failed to achieve in 60 years. She further claimed that peace has been "restored in Assam" under BJP rule and emphasized that development is only possible with such stability.

AFSPA AND REGIONAL GROWTH

The Finance Minister noted that while Assam lived under AFSPA for 32 years due to Congress policies, the BJP has ensured the law was removed from most States. She also highlighted a shift in migration patterns, claiming that many young Assamese are now leaving global careers to return to Assam because of the opportunities currently available in the State.

‘Vijay’s solo entry may split anti-DMK vote, favour DMK alliance’

T E Raja Simhan | Chennai

The entry of Tamilaga Vettri Kazhagam (TVK) founder C Joseph Vijay into the electoral fray has added a new dimension to the Tamil Nadu Assembly elections 2026, according to Thol Thirumavalavan, Founder of the Viduthalai Chiruthaigal Katchi (VCK). Thirumavalavan noted that Vijay’s prominence and significant media coverage have made him a central figure in the current political discourse.

STRATEGIC IMPACT

Thirumavalavan observed that Vijay has successfully turned the electoral arena into a focal point of public attention. He argued that had Vijay aligned with an anti-DMK coalition, it could have posed a serious challenge to the DMK-led alliance. However, by contesting independently, Vijay is likely to draw a share of anti-DMK votes that might otherwise have consolidated behind the AIADMK-BJP combine. This fragmentation of the opposition vote could, in effect, work to the advantage of the DMK alliance.

While Vijay has asserted that the contest is solely between the DMK and the TVK, Thirumavalavan noted that both the AIADMK and the BJP do not regard Vijay as a significant factor and remain focused on their objective of defeating the DMK.

VCK’S ASSEMBLY BID

Thirumavalavan has decided to contest the Assembly elections himself, despite currently being a Lok Sabha member. He explained that the Legislative Assembly is the "primary arena of Tamil Nadu’s political landscape," whereas the scope to exert tangible influence in Delhi is limited to debates. He believes that, as of now, the DMK alliance stands as a strong coalition with significant public support and that there is little possibility of a hung Assembly.

RESERVATIONS ON WELFARE MEASURES

Answering a question on the proliferation of welfare measures, the VCK leader expressed reservations about "freebie politics". He stated his firm conviction that, with the sole exception of education, nothing else should be provided free of cost. He criticized the current situation, noting that education is not being provided for free, nor is it receiving adequate financial support, while both the DMK and AIADMK engage in the "indiscriminate distribution of goods and services under the guise of welfare".

Unilever food arm to join McCormick in $45 b deal

Bloomberg

Unilever has agreed to combine its food business with spice maker McCormick in a $44.8 billion deal that will create a global seasonings, sauces, and condiments company. Under the agreement, McCormick will pay the Anglo-Dutch company $15.7 billion and provide the equivalent of $29.1 billion in McCormick shares for the majority of Unilever’s food business. This arrangement will leave Unilever and its shareholders with 65 per cent of the combined entity, including McCormick brands such as French’s mustard.

BIGGEST DEAL

The deal is the largest in the histories of both companies and will help recast Unilever as a global leader in beauty, personal, and home care. Simultaneously, it will turn McCormick into a more significant competitor in the global packaged food business. The transaction will be carried out through a Reverse Morris Trust, a type of merger designed to be tax-free.

The transaction represents a highly ambitious move by McCormick, a company best known for its red and white spice containers. Notably, McCormick is a much smaller company, with its entire business generating only half the sales of Unilever’s food arm.

Pricey memory chips hit smartphone sales in 2026

Vallari Sanzgiri | Mumbai

Smartphone sales in India declined nine per cent year-on-year due to a combination of rising memory component costs and seasonal softness, according to data from Counterpoint Research’s India Weekly Smartphone Sell-out Tracker.

PRICE HIKES AND MARKET IMPACT

By the ninth week of 2026, more than eight brands had already implemented price increases, with an average hike of ₹1,500. Despite the resulting impact on consumer footfalls and overall sales, these hikes are expected to continue rising, and new product launches are being introduced at higher price points.

While Republic Day sales provided a temporary boost primarily for online channels, sustained premiumisation helped maintain value growth for the sector. Prachir Singh, Senior Research Analyst at Counterpoint Research, noted that the market started the year on a low note as "persistent price increases continued to weigh on consumer demand," further exacerbated by limited promotional intensity and fewer new launches.

BRAND PERFORMANCE

Despite the broader market slump, some brands saw growth:

• Vivo: Recorded the strongest annual sales growth at 19 per cent in the first nine weeks of 2026, driven by new launches and the performance of its Y and T series.
• Apple: Grew 12 per cent, supported by discounts and sustained demand for the iPhone 17 series.

OUTLOOK FOR 2026

The market faces a challenging year ahead. Tarun Pathak, Research Director at Counterpoint Research, projected that India’s smartphone market could decline by around 10 per cent in 2026. He attributed this to ongoing global uncertainties, geopolitical tensions, and rising prices for essential commodities, all of which weigh on discretionary spending. While the premium segment is expected to remain resilient, affordability constraints will continue to hinder demand in the mass segment, resulting in a gradual and uneven recovery.