Page 17 - Policy Economic Report - Jan 2026

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

The IIP rose by 7.8% in December 2025, marking its highest level in over two years, following robust
growth of 7.2% (RE) in November 2025. Sector-wise, Manufacturing remained the primary growth
driver, expanding by 8.1%, while Mining and Electricity recorded growth of 6.8% and 6.3%, respectively.

Within manufacturing, strong performance was observed in technology- and mobility-linked segments,
with notable growth in:

o Computer, electronic and optical products (34.9%)
o Motor vehicles, trailers, and semi-trailers (33.5%)
o Other transport equipment (25.1%)

On the core sector front, Cement production surged by 13.5% year-on-year, followed by Steel at 6.9%,
reflecting sustained demand from construction and infrastructure-related activities. Other core sectors
also posted growth, including Electricity (5.3%), Fertilizers (4.1%), and Coal (3.6%), reinforcing the
recovery across energy and input-intensive industries.

• Fiscal Development
o Strengthened Fiscal Credibility and Rating Upgrades- Prudent fiscal management by the
government has enhanced credibility and strengthened confidence in India’s macroeconomic and
fiscal framework, resulting in three sovereign credit rating upgrades in 2025 by Morningstar DBRS,
S&P Global Ratings, and Rating and Investment Information (R&I), Inc.

o Improvement in Centre’s Revenue Receipts- The Centre’s revenue receipts improved from an
average of about 8.5% of GDP in FY16–FY20 to 9.2% of GDP in FY25 (PA), mainly supported by
buoyant non-corporate tax collections that increased from about 2.4% of GDP pre-pandemic to
around 3.3% post-pandemic.

o Expansion of the Direct Tax Base- The share of direct taxes in total taxes rose from 51.9% pre-
pandemic to 55.5% post-pandemic, reaching 58.8% in FY25 (PA). Meanwhile, the direct tax base
expanded steadily, with income tax return filings rising from 6.9 crore in FY22 to 9.2 crore in FY25,
indicating better compliance, wider use of technology in tax administration, and more individuals
entering the tax net as incomes increased

o Trends in State Governments’ Fiscal Deficit- The combined fiscal deficit of State Governments
remained broadly stable at around 2.8% of GDP in the post-pandemic period, like pre-pandemic
levels, but rose in recent years to 3.2% in FY25, reflecting emerging pressures on State finances.

o Reduction in General Government Debt Ratio- India lowered its general government debt-to-GDP
ratio by about 7.1 percentage points since 2020 while continuing to maintain high levels of public
investment.

• Monetary Policy Actions and Liquidity Management
In response to the evolving macroeconomic and financial developments, the Reserve Bank of India’s
(RBI) Monetary Policy Committee cumulatively reduced the repo rate by 100 basis points between

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