Punit Paranjpe/AFP/Getty Images
Workers work at a construction site in Mumbai in November 2023.
New Delhi/London CNN —
India has reported surprisingly robust economic growth numbers, ending 2023 on a strong note and giving Prime Minister Narendra Modi a major boost just weeks before a national election.
Gross domestic product (GDP) in the world's fastest-growing major economy rose 8.4% in the final three months of 2023 compared to a year earlier, above growth of 1.5% 7.6% in the period June to September, the country's statistics office said on Thursday.
The recent increase is much stronger than analysts expected and means India's economy “ended last year with a bang,” Thamashi De Silva, deputy India economist at Capital Economics, wrote in a note.
“This pace of growth was the strongest among major economies in the last quarter,” she added.
The data will further bolster optimism about the economic prospects of the world's most populous country. The number of ultra-rich Indians, those with a net worth of at least $30 million, will rise by 50% in the five years to 2028, the largest increase in the world, according to a separate report by real estate consultancy Knight Frank on Wednesday.
The International Monetary Fund expects India's economy to grow 6.5% in 2024, but the Modi government is using a much higher estimate of 7.6% the financial year ending in March.
“The robust GDP growth of 8.4%… shows the strength of the Indian economy and its potential,” Modi said on Thursday on X. “Our efforts will continue to result in rapid economic growth that will support Rs 140 crore [1.4 billion] Indians lead better lives.”
Sustained expansion will quickly move India up the rankings of the world's largest economies. Analysts at Jefferies expect the country to be the world's third-largest economy by 2027, up from its current fifth position.
India is also widely seen as an alternative to China for countries and companies looking to diversify their supply chains, especially as relations between Washington and Beijing deteriorate.
Modi's government is actively wooing multinational companies to set up factories in the country as it spends billions on modernizing roads, ports, airports and railways.
Some of the world's largest companies, including Apple supplier Foxconn, are already expanding their operations there. And Tesla (TSLA) CEO Elon Musk said last June that his company was wants to invest in India “as soon as possible”.
On Thursday, the Modi government approved an investment of over $15 billion to build three semiconductor factories by companies including the Tata Group, marking a major step towards its goal of making India an electronics manufacturing hub.
The Factories, known as fabs, are expected to create 20,000 high-technology jobs and about 60,000 indirect jobs, the government said in a statement. It said The investment is a “giant leap” for India’s semiconductor ambitions.
“India already has extensive chip design capabilities. “With these units, our country will develop capabilities in chip manufacturing,” the statement said.
Despite the euphoria Given the recent growth numbers, economists advise caution when reading the data.
“All that glitters is not growth,” Nomura wrote in a note dated Friday. “Underlying growth is weaker than the headline suggests.”
It added that consumption continues to lag and the agriculture sector, which contributes 16% to India's GDP and is a key source of employment, is underperforming.
HSBC economists said “calm” was needed, even as they acknowledged the country was “growing at an incredible pace”.
“India remains a haven of strong growth and macroeconomic stability in a volatile global environment.” they wrote in a note on Friday.
De Silva of Capital Economics noted that the momentum behind India's red-hot economic growth “may be slowing a bit” as weak global growth weighs on exports, while tighter restrictions on unsecured loans may increase in the country limit household spending.
But “any slowdown in growth will be mild, particularly as the government's infrastructure initiative is likely to boost activity,” she added.