Page 7 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

Inflationary pressures in India remained relatively contained but showed signs of renewed food-price
pressure during July. Headline CPI inflation increased marginally to 4.45 per cent, while food inflation rose
to 5.52 per cent. Wholesale inflation remained considerably higher at 9.78 per cent, although it
moderated marginally from June as fuel and power inflation declined. The divergence between retail and
wholesale inflation underscores the continued importance of monitoring commodity and input-cost
pressures, particularly in the context of elevated global energy prices. Against this backdrop, the RBI
retained a neutral and data-dependent monetary policy stance, keeping the repo rate unchanged at 5.25
per cent.

India's external sector strengthened further during August, with foreign exchange reserves rising sharply
to a record US$729.33 billion by 21 August. The increase, together with sustained foreign-currency
inflows, provides a stronger buffer against external shocks and reinforces India's external-sector
resilience. At the same time, merchandise exports continued to record strong growth during July, led by
petroleum products, electronic goods and engineering goods.

Industrial activity also remained on a stronger footing. The Index of Eight Core Industries grew by 5.4 per
cent in July, with iron ore, cement, electricity, coal and steel providing significant support. Cumulative
core-sector growth during April–July 2026 was considerably stronger than in the corresponding period of
the previous year, indicating an improvement in underlying industrial momentum. However, contractions
in crude oil, natural gas and fertilisers point to continuing sectoral unevenness. Meanwhile, the August
PMI indicated that India's private-sector expansion strengthened marginally, with services activity more
than offsetting a further slowdown in manufacturing. The divergence highlights the increasing role of
services in sustaining near-term economic activity, even as factory output and new orders moderated.

India's economic policy environment also continued to evolve towards strengthening the quality and
resilience of growth. S&P Global Ratings affirmed India's 'BBB' sovereign rating with a stable outlook,
recognising the country's strong growth potential, external position, infrastructure investment and
improving financial-sector fundamentals, while identifying elevated public debt and fiscal performance as
continuing constraints. In the capital markets, SEBI's proposed reforms to the SME public-offering
framework seek to increase institutional participation, strengthen eligibility requirements and enhance
investor protection. These measures could improve governance, price discovery and the quality of capital
formation in India's growing SME ecosystem.

As far as oil and gas industry is concerned, benchmark crude prices surged to a two-month high in July as
the recovery in oil supplies from the Gulf reversed course following the breakdown of the mid-June Iran-
US ceasefire agreement. Oil prices traded in an unusually wide range of $40/bbl, driven by sudden
diplomatic pivots on the conflict. Expectations of diplomatic progress had triggered steep price declines
in June and early July, but a return to hostilities led prices to spike as high as $105/bbl on 23 July. Product
cracks and refining margins, meanwhile, have continued to rise in August, setting new records in Europe.

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