Page 15 - Policy Economic Report - Jan 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

A strong agricultural performance has bolstered rural incomes and consumption, while improvements in
urban demand- supported by tax rationalization measures indicate a broadening of the consumption base.
India’s potential growth is estimated at around 7%, with real GDP growth for FY27 projected in the range
of 6.8-7.2%, reflecting sustained medium-term growth capacity amid a challenging global environment.

• Inflation Trends and Outlook

India recorded the lowest Inflation rate since the beginning of the CPI series, with April-December 2025
average headline Inflation coming in at 1.7%, attributing to general disinflationary trend in food and fuel
prices.

Among major Emerging Markets & Developing Economies (EMDEs), India has recorded one of the
sharpest declines in headline Inflation in 2025 over 2024, amounting to about 1.8 percentage points. In
December 2025, the RBI lowered its Inflation forecast for FY26 from 2.6% to 2.0%, supported by a good
kharif harvest and healthy rabi sowing.

The IMF projects Inflation at 2.8% in FY26 and 4.0% in FY27. The RBI’s forecast for headline Inflation for
Q1 and Q2 of FY27 currently stands at 3.9 and 4%. Looking ahead, the Inflation outlook remains benign,
supported by favorable supply side conditions and the gradual pass-through of GST rate rationalization.

• Sectoral Performance
o Agriculture and allied activities continue to play a stabilizing role in India’s growth cycle by
supporting rural demand and income security. The sector is estimated to grow by 3.1% in FY26,
supported by a favorable monsoon during H1 FY26. Agricultural GVA expanded by 3.6% in H1
FY26, higher than the 2.7% growth recorded in H1 FY25, reflecting improved crop performance.

o Industrial activity is expected to gain momentum in FY26, with the industrial sector projected to
grow by 6.2%, up from 5.9% in FY25. The sector recorded growth of 7.0% in the first half of FY26,
exceeding the growth of 6.1% in H1 of FY25 and the pre-COVID trend of 5.2%. Manufacturing has
emerged as a key growth engine, with GVA growth accelerating to 7.72% in Q1 and 9.13% in Q2
of FY26, signaling a structural recovery.

o Services sector is estimated to have grown by 9.1% in FY26, up from 7.2% in FY25, indicating a
further acceleration in services-led expansion. Services’ share in GDP rose to 53.6% in H1 FY26,
while its share in GVA reached a historic high of 56.4% as per the FY26 First Advance Estimates,
reflecting the rising importance of modern, tradable, and digitally delivered services. India is now
the world’s seventh-largest exporter of services, with its share in global services trade more than
doubling from 2% in 2005 to 4.3% in 2024.

• Employment and Labor Market Trends
India’s labour market continues to demonstrate resilience alongside economic expansion. In Q2 (July to
September 2025) FY26, total employment stood at 56.2 crore persons (aged 15 years and above),
reflecting the creation of approximately 8.7 lakh new jobs compared to Q1(April to June 2025) FY26.

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