India’s economy ended 2023 ‘with a bang’ as growth surged to 8.4%

The world’s fastest-growing major economy is living up to its billing.

Gross domestic product in India surged 8.4% in the final three months of 2023 compared with a year prior, up from growth of 7.6% in the June-to-September period, the country’s statistics office said Thursday.

The latest rise is much stronger than analysts expected and means India’s economy “ended last year with a bang,” Thamashi De Silva, assistant India economist at Capital Economics, wrote in a note.

“That pace of growth was the strongest among major economies last quarter,” she said, also noting that in 2023 as a whole GDP grew 7.7%. Timelier business activity data suggests “the economy has made a flying start to 2024 too,” she added.

The data will further bolster optimism over the economic prospects of the world’s most populous nation.

The International Monetary Fund expects India’s economy to expand by 6.5% in 2024, compared with 4.6% for China, where growth has slowed because of a slew of challenges, including a real estate crisis, record youth unemployment and downbeat consumers. China’s leaders are expected to unveil their growth target for 2024 next week.

A sustained expansion will rapidly push India up the rankings of the world’s biggest economies. Analysts at Jefferies expect the country to become the world’s third-largest economy by 2027, up from fifth currently.

India is also widely seen as an alternative to China for countries and companies looking to diversify their supply chains, particularly as the relationship between Washington and Beijing sours.

The government of Prime Minister Narendra Modi has been actively courting large firms to set up factories in the country, as it spends billions to upgrade roads, ports, airports and railways.

Some of the world’s biggest companies, including Apple supplier Foxconn, are already expanding their operations there. And Tesla (TSLA) CEO Elon Musk said last June that his company was looking to invest in India “as soon as humanly possible.”

“(Modi) really cares about India because he’s pushing us to make significant investments in India, which is something we intend to do,” Musk told reporters.

De Silva at Capital Economics noted that the momentum behind India’s red-hot economic growth “may fade a touch,” as weak global growth weighs on exports, while tighter restrictions on unsecured lending in the country limit household spending.

But “any slowdown in growth will be mild, particularly as the government’s infrastructure drive is likely to prop up activity,” she added.