New Delhi/London
CNN
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India posted surprisingly robust economic growth, ending 2023 on a strong note and giving Prime Minister Narendra Modi a boost just weeks before an election that could give him a third term.

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, according to the country's statistics office said Thursday.

The recent increase was much stronger than analysts expected and meant 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 fastest increase in the world, according to a report by real estate consultancy Knight Frank on Wednesday.

Buoyed by the strong GDP numbers, India's stock markets reached new all-time highs on Friday. Indian investors have steadily pushed stocks higher over the past 12 months, pushing the total value of companies listed on Indian stock exchanges to over $4 trillion at the end of last year.

The International Monetary Fund expects the Indian economy to grow 6.7% for the fiscal year ending March, while the Modi government has a much higher estimate of 7.6%. The IMF forecasts economic growth of 6.5% for the fiscal year beginning April 1st.

“Robust GDP growth of 8.4%… shows the strength of the Indian economy and its potential,” Modi said said on X Thursday. “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 investments of over $15 billion for the construction of three semiconductor factories by companies including Tata Group. This is an important step towards their goal of making India an electronics manufacturing hub.

The Factories are expected to create 20,000 high-tech jobs and about 60,000 jobs in the broader community, 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 latest growth figures, economists advise caution.

“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 as “manufacture and construction were weaker compared to the previous quarter”, 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.