Laborers work at a construction site in Mumbai in November 2023.
New Delhi/London CNN  — 

India has reported surprisingly robust economic growth, ending 2023 on a high note and providing a boost to Prime Minister Narendra Modi just weeks before an election that could give him a third term in office.

Gross domestic product (GDP) in the world’s fastest growing major economy 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 increase was 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 added.

The data will further bolster optimism over the economic prospects of the world’s most populous nation. According to a report Wednesday from real estate consultancy Knight Frank, the number of ultra-rich Indians, those with a net worth of at least $30 million, will rise 50% over the five years to 2028, the biggest increase globally.

Buoyed by the strong GDP numbers, India’s stock markets hit new all time highs on Friday. Indian investors have been driving shares steadily higher over the past 12 months, pushing the combined value of companies listed on India’s exchanges above $4 trillion late last year.

The International Monetary Fund expects India’s economy to expand by 6.7% for the fiscal year through March, while the Modi government has a much higher estimate of 7.6%. The IMF projects the economy to grow by 6.5% in the fiscal year starting April 1.

“Robust 8.4% GDP growth…shows the strength of Indian economy and its potential,” Modi said on X Thursday. “Our efforts will continue to bring fast economic growth which shall help 140 crore [1.4 billion] Indians lead a better life.”

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.

Modi’s government has been actively courting multi-national 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 (AAPL) 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.”

On Thursday, the Modi government approved an investment of over $15 billion for the construction of three semiconductor plants by firms including the Tata Group, marking a major step towards its goal of making India an electronic manufacturing hub.

The factories are expected to create 20,000 advanced technology jobs and about 60,000 jobs in the wider community, the government said in a statement. It said the investment was a “giant leap” for India’s semiconductor ambitions.

“India already has deep capabilities in chip design. With these units, our country will develop capabilities in chip fabrication,” the statement said.

Keep calm

Despite the euphoria surrounding the latest growth figures, economists are advising caution.

“All that glitters is not growth,” Nomura wrote in a note on Friday. “Underlying growth is weaker than what the headline suggests.”

It added that consumption continues to lag and the agriculture sector, which contributes 16% to India’s GDP and is a major source of employment, has underperformed.

HSBC economists said “calm” was needed as “manufacturing and construction were softer” compared to the previous quarter, even as they acknowledged the country is “growing at an incredible pace.”

“India remains an oasis of strong growth and macro stability in a volatile global backdrop,” they wrote in a note on Friday.

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 may 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.