India within ‘striking distance’ of 8% growth, says top Narendra Modi aide

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India will be within “striking distance” of a return to 8 per cent annual economic growth if there are no big new global conflicts, according to Prime Minister Narendra Modi’s top aide.

Shaktikanta Das, one of Modi’s principal secretaries, told the FT that India’s economy had been challenged in recent years by the Covid pandemic, Russia’s full-scale invasion of Ukraine and the US-Israel war on Iran, but new reforms to boost momentum were being planned.

The IMF predicted in April that India’s growth would fall to 6.5 per cent this fiscal year and next, from 7.6 per cent in the year to March.

That would still leave India as the world’s fastest-growing major economy, but some officials in New Delhi believe that following the US and Iran’s shaky ceasefire deal this month, 7 per cent growth is achievable in 2026-27.

“With a reasonable level of normality in the geopolitical situation and the reforms being undertaken by the prime minister, 8 per cent growth should be within striking distance,” said Das, 69, a career civil servant who headed India’s central bank from 2018 to 2024.

The 8 per cent threshold is important as economists estimate India needs to maintain average real GDP growth of about that rate if it is to achieve Modi’s stated goal of developed country status by 2047, the centenary of independence from the UK.

India introduced a new GDP data series this year that accounts for inflation differently and uses additional data sources. According to the new methodology, growth was 7.2 per cent in 2023-24 and 7.1 per cent in 2024-25.

India’s stock market has suffered a wave of selling this year, as investors chase AI-driven gains on bourses such as those of Taiwan and South Korea.

Analysts have also raised concerns about the impact of AI on India’s huge outsourcing and IT sectors, but senior officials believe that the new technology will not crimp the country’s economic growth.

“The impact of AI on India’s GDP growth will be far less than in the advanced economies,” one official said. “India’s growth is not AI-dependent, it is more diversified across multiple sectors.”

Modi has won plaudits from foreign investors for overseeing huge infrastructure investment during his 12 years in power. India has more than doubled its tally of airports and built thousands of kilometres of motorways. It has also electrified its vast railway network — an achievement that has eluded many European countries.

The prime minister also introduced a swath of reforms last year to liberalise India’s labour market, harmonise the complex goods and services tax regime and entice foreign investors.

Morgan Stanley has estimated that a recent government-central bank package of investor incentives could draw $40bn-$60bn of incremental capital inflows, helping keep India’s balance of payments out of the red next year. Das said more market-friendly initiatives were “in the pipeline”, though he did not provide details.

“The prime minister is absolutely focused on reforms to improve the ease of doing business,” he said. “In the last six to seven years, we have had . . . four major international crises,” Das said. “India has emerged stronger each time because it saw every crisis as an opportunity to advance further reforms.”

At the start of the US-Israel war on Iran, analysts voiced concerns about India’s high dependency on imported oil and gas, but New Delhi has stepped up purchases of oil from Russia and Venezuela and averted serious shortages.

Modi largely tried to project a “business as usual” attitude during the crisis, but at one point last month he called on Indians to save fuel by working from home and using public transport, to suspend non-essential purchases of gold and to avoid travelling abroad for holidays and weddings.

However, the prime minister’s appeal went largely unheeded and government officials say India has been relatively successful in shielding its economy from the worst effects of the conflict in the Gulf.

Prices of fuel and fertilisers were held down to prewar levels for most of the conflict, with a small rise in fuel prices only beginning in mid-May. This preserved consumers’ spending power, albeit at a cost of what officials privately estimate could be an extra half a percentage point of government fiscal deficit as a proportion of GDP this year.

Officials also believe trade deals concluded this year with the UK and EU, and an interim deal under negotiation with the US, will help draw in foreign funds.

After months of outflows, net FDI rose to $6.6bn in April, its highest in five years, according to official data.

Data visualisation by Haohsiang Ko in Hong Kong