The domestic IT sector has been concerned about an uncertain near-term growth outlook amid rising worries posed by the Artificial Intelligence led business narrative and sustained geopolitical worries. Nevertheless, IMF has warned this year that the current AI investment surge, fueled by optimism, resembles the 1990s dot-com bubble, risking sharp market corrections if lofty profit expectations aren't met, potentially impacting tech valuations and consumption. While India sees huge AI investments, the IMF cautions against irrational exuberance. A steep drop in the value of the Indian Rupee against major currencies could turn out be to a supportive factor for the tech sector earnings in India. An impressive rebound in local economy and digitalization of the economy and governance could also benefit the domestic tech players.
For the upcoming Union Budget 2026-27, NASSCOM (National Association of Software and Service Companies) has submitted its official Pre-Budget Memorandum to the Ministry of Finance, based on inputs from the industry. The focus is on reducing administrative friction and strengthening policy implementation for India’s technology and IT-BPM sectors.
NASSCOM has requested the Government to implement measures for giving effect to the Union Budget 2024 announcement to make safe harbour rules attractive and streamline transfer pricing assessment procedure. This will attract growth of GCCs and improve ease of doing business for the IT-BPM MNEs. Besides, the trade body suggests enabling the technology services industry to effectively utilise the income tax benefit during 11-15th year of operation in the SEZs by broadening the eligible purposes for utilisation of the Re-investment Reserve under S. 10AA.
Strengthening availability of patient capital for DeepTech Startups in India and making deferment of the time of payment of tax on Employee Stock Option Plan available to employees of all DPIIT recognised start-ups is also among NASSCOM’s suggestions. The industry body has also requested to implement a range of ease of doing measures to significantly boost competitiveness for IT-BPM, Ecommerce and start-ups.
These measures should boost efficiency for the broader industry, it noted. Seen together, the suggestions in the pre-Budget submissions focus on improving clarity, consistency and predictability in areas that firms encounter on a routine basis. Their relevance lies less in any individual measure and more in how these elements can work together in practice, it noted.
Innovation in technology and AI must be balanced with judgment and unwavering respect for procedure: Union Finance Minister
Union Finance Minister Nirmala Sitharaman while addressing the 18th plenary meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes emphasised that for India, transparency touches upon the deeper principle that economic governance must rest on fairness and responsibility, and noted that transparency is not merely a compliance tool but a foundation for sustainable development, observing that when national wealth escapes legitimate taxation, it creates both a revenue and a development gap. Sitharaman stressed that voluntary compliance has improved in India not just through enforcement, but through clarity, simplification, and a consistent effort to build trust. While acknowledging the potential of technology and AI in analyzing information, she cautioned that innovation must be balanced with judgment and unwavering respect for procedure. She concluded by asserting that trust between jurisdictions has tangible economic value and called for continued cooperation to manage emerging challenges like the digitalization of the economy and evolving structures of beneficial ownership.
Outlook:
Worldwide spending on Information Technology (hardware, software and IT services) is on course to post an increase of 14% in 2025, representing the fastest year of growth since 1996 when the launch of Windows 95, expanding PC usage and Internet adoption were the primary drivers of IT spending. Some 30 years later, the emergence of a massive AI infrastructure investment wave is driving another supercycle of tech spending around the world, with IT spending set to reach $4.25 trillion this year. Total ICT spending (which includes telecom and business services, in addition to IT spending) will reach almost $7 trillion in 2025, IDC noted. This indicates that the global outlook is steady and it will likely shape up well for the domestic IT sector as well. The pace of advances in AI cycle and visible changes in nature of work owing to it will be a key area for overall tech ecosystem. It this regard, a robust domestic economy and sustained focus on digitalization will be constructive factors for the local IT sector.