Page 22 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

The international outlook nevertheless remains favorable relative to most major economies. The IMF's
projections cited in the assessment place India's growth at around 6.4 per cent over the medium term,
while Moody's expects growth of 6.4 per cent in 2026 and 6.5 per cent in 2027. S&P Global projects
growth of 6.5 per cent in FY 2026–27 and 6.7 per cent in FY 2027–28, while the United Nations World
Economic Situation and Prospects places India's growth at around 6.6–6.7 per cent. The differences across
forecasts largely reflect variations in assumptions regarding energy prices, global demand, trade
conditions and domestic investment.

The moderation expected during FY 2026–27 is primarily associated with external headwinds rather than
a weakening of India's underlying growth potential. Higher energy prices, particularly given India's
dependence on imported crude oil and gas, could raise production and transportation costs, while
geopolitical tensions and trade restrictions could affect exports and investment. The World Bank has
similarly highlighted the risks arising from the Middle East conflict, higher energy prices and supply-chain
disruptions, while emphasizing that India's strong macroeconomic buffers—including substantial foreign
exchange reserves, low inflation and a healthy financial sector—provide important protection against
these shocks.

Despite these near-term challenges, India's medium-term growth prospects remain favourable. Sustained
infrastructure investment, expansion of manufacturing capacity, digitalization and favourable
demographic trends are expected to support productivity and investment. Sectors including electronics,
pharmaceuticals, defence manufacturing, renewable energy, fintech and semiconductors are likely to
remain important contributors to future growth, while continued integration into global value chains
could further strengthen India's manufacturing and export potential. The economy's ability to sustain high
growth will, however, depend increasingly on the pace of private investment, employment generation,
productivity enhancement and resilience to external energy and trade shocks.

Inflation in India

Retail inflation in India edged higher during July 2026, primarily reflecting a rise in food prices, while
inflation across most non-food categories remained relatively moderate. Headline CPI inflation increased
marginally to 4.45 per cent in July from 4.38 per cent in June, with food inflation rising more noticeably
to 5.52 per cent in July from 5.32 per cent. The latest CPI data suggest that inflationary pressures
remained largely concentrated in food and select consumption categories, rather than representing a
broad-based acceleration in prices, while housing and several other non-food components continued to
record comparatively moderate inflation.

National Level Indices

India's retail inflation remained moderate but edged higher in July 2026, with food prices emerging as the
principal source of upward pressure. According to the National Statistics Office (NSO), Ministry of
Statistics and Programme Implementation (MoSPI), headline CPI inflation increased to 4.45 per cent in
July 2026 (Provisional) from 4.38 per cent in June 2026 (Final). Rural inflation stood higher at 4.84 per
cent, while urban inflation was comparatively lower at 3.96 per cent. The July reading marks a modest

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