India's economy has the potential to once again approach an 8% annual growth rate if no major fresh global conflicts erupt, according to a top aide to Prime Minister Narendra Modi.
Shaktikanta Das, one of Modi's principal secretaries, stated in an interview that India has faced multiple shocks in recent years and is now planning a new round of reforms to boost economic momentum.
The International Monetary Fund forecast in April that India's economic growth would slow to 6.5% in the current and next fiscal years, down from 7.6% in the year ending this past March.
Even at 6.5% growth, India remains the fastest-growing major economy globally. However, some government officials believe that with the recent, albeit fragile, US-Iran ceasefire agreement, India could achieve 7% growth in the 2026-2027 fiscal year.
The 69-year-old Das, a career civil servant who led the Reserve Bank of India from 2018 to 2024, said, "As long as the geopolitical situation remains broadly stable, and with the reforms being pursued under the Prime Minister's leadership, the 8% growth target is within reach."
Reaching the 8% threshold is significant. Economists estimate that for India to achieve Modi's stated goal of becoming a developed nation by 2047—the centenary of its independence from Britain—it needs to sustain real GDP growth close to that level over the long term.
India introduced a new GDP data series this year, which adjusts inflation accounting and incorporates more data sources. Under this new series, growth was 7.2% in 2023-2024 and is estimated at 7.1% for 2024-2025.
This year, Indian stock markets have faced a sell-off as funds flowed to markets like South Korea, chasing returns linked to the artificial intelligence theme.
Analysts have also expressed concerns that AI could impact India's vast outsourcing and information technology sector. However, senior officials believe the new technology will not hinder the country's economic growth.
One official stated, "The impact of AI on India's GDP growth will be much smaller than on developed economies. India's growth is not dependent on AI; the economy is diversified across many sectors."
Modi's twelve years in power have seen a major push in large-scale infrastructure investment, which has won widespread praise from foreign investors. The number of airports has more than doubled, thousands of kilometers of highways have been built, and the entire vast national railway network has been electrified—an achievement not yet matched by many European nations.
Last year, the Modi government introduced a package of reforms, easing labor market regulations and streamlining the complex Goods and Services Tax system to attract foreign investment.
Morgan Stanley estimates that recent incentive packages for foreign investment, jointly introduced by the central government and the central bank, could attract an additional $400 billion to $600 billion in foreign inflows, helping India avoid a current account deficit next year. Das indicated that more market-friendly policies are in the works, though he did not provide specific details.
"The Prime Minister is relentlessly pursuing reforms and continuously improving the business environment," he said. "In the last six or seven years, the world has seen four major international crises. But India has emerged stronger each time because we have treated every crisis as an opportunity to deepen reforms."
When the US-Iran conflict initially erupted, many analysts feared India's heavy reliance on oil and gas imports would cause severe damage. However, New Delhi increased crude purchases from Russia and Venezuela, successfully averting a major energy shortage.
During the crisis, Modi largely projected an image of business as usual, though last month he did urge citizens to conserve energy: work from home, use public transport more, postpone non-essential gold purchases, and reduce overseas travel for vacations and weddings.
This appeal from the Prime Minister did not see widespread public adoption. Government officials stated that India has weathered the worst of the economic shock from the Gulf conflict relatively well.
For most of the conflict's duration, fuel and fertilizer prices were held stable at pre-war levels, with only a minor fuel price increase in mid-May. This protected consumer purchasing power, but officials privately estimate the cost may be an additional 0.5 percentage points on the fiscal deficit-to-GDP ratio this year.
Indian officials also believe that trade deals finalized this year with the UK and the European Union, as well as a provisional US-India trade agreement under negotiation, will help attract foreign capital.
Official data shows that after months of foreign capital outflows, net foreign direct investment inflows reached $6.6 billion in April, hitting a five-year high.
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