India Leads Global Growth at 6.8% as OECD Forecasts Outpace US, China

Manufacturing Renaissance and Services Boom Drive India's Outperformance

India's economic expansion stems from a powerful combination of manufacturing resurgence and services sector dynamism that defies broader global trends, economists familiar with the report said.

Government officials point to the production-linked incentive scheme launched in 2020 as a catalyst that has attracted $45 billion in committed investments across 14 key sectors including electronics, pharmaceuticals, and automotive components.

The program has yielded tangible results, with electronics manufacturing production value jumping 37% in fiscal 2025, according to Ministry of Commerce data.

Services exports have surged 18% year-on-year, driven by information technology, business process outsourcing, and financial services, with IT exports alone reaching $245 billion in the last fiscal year.

The services sector now accounts for 54% of India's GDP, employing roughly 32% of the workforce, and continues expanding at 7.2% annually, well above the global services growth rate of 3.8%.

• Manufacturing sector grew 8.3% in 2025, fastest among major economies
• Production-linked incentive scheme attracted $45 billion in committed investments
• Electronics manufacturing production value jumped 37% in fiscal 2025
• Services exports surged 18% year-on-year, led by IT and financial services
• IT exports reached $245 billion in the last fiscal year

The dual engines of growth operate differently than in previous decades, with manufacturing moving up the value chain toward electronics and specialized components rather than textiles and low-end assembly.

Meanwhile, services have evolved beyond traditional IT outsourcing to include higher-value consulting, artificial intelligence development, and financial technology solutions, commanding premium pricing in global markets.

This structural shift explains why India maintains growth momentum even as traditional manufacturing powerhouses like Germany and Japan face contractionary pressures.

The OECD report specifically notes that India's manufacturing capacity utilization has reached 75%, its highest level since 2011, indicating strong domestic and international demand for Indian-made goods.

Meanwhile, services sector profitability has improved 12% over the past two years as companies successfully transition to higher-margin offerings and expand their global footprint beyond traditional markets in North America and Europe.

US Growth Lags Behind Global Average as Economic Headwinds Mount

The world's largest economy will grow substantially slower than both the world average and G20 aggregate through 2027, according to OECD projections that highlight America's relative economic weakness.

The United States expanded 2.1% in 2025, below the OECD's world average of 3.4% and the G20 aggregate of 3.3%, marking the third consecutive year of subpar performance relative to global peers.

For 2026, US growth is projected at 2.0% against a world average of 2.8%, with the gap widening in 2027 to 1.8% against a global average of 3.1%.

• US grew 2.1% in 2025, below world average of 3.4% and G20 aggregate of 3.3%
• US projected to grow 2.0% in 2026, below world average of 2.8%
• US projected to grow 1.8% in 2027, below world average of 3.1%
• US growth will lag behind global average in all three years of the forecast
• Persistent inflation and higher interest rates cited as primary drags on US economy

The underperformance reflects structural challenges including aging demographics, declining productivity growth, and persistent inflation that has forced the Federal Reserve to maintain higher interest rates than most other major economies.

Analysts note that US labor force growth has slowed to 0.5% annually, compared to 1.2% in India, while productivity gains have dwindled to just 1.1% per year, down from the 2.3% average achieved between 2010-2019.

The housing market remains particularly constrained, with mortgage rates above 6.5% depressing construction activity and related consumer spending, which accounts for nearly 70% of US economic activity.

Business investment has also moderated, growing just 2.3% in 2025 compared to 5.8% in India, as companies delay expansion plans amid uncertainty about monetary policy and global trade conditions.

The OECD report specifically identifies the US services sector as underperforming relative to historical trends, with growth of just 1.8% in 2025 compared to the 3.2% average of the previous decade.

This weakness in services—traditionally America's economic strength—contrasts sharply with India's booming services sector and represents a significant shift in global economic dynamics.

China's Slowing Growth Creates Opening for India's Economic Ascendancy

China's economic deceleration has created a strategic opening for India to capture global investment and market share, with the OECD report highlighting the divergence between Asia's two largest economies.

China's growth has slowed to 4.6% in 2025 and is projected to moderate further to 4.2% in 2026 and 4.0% in 2027, marking a significant decline from the double-digit expansion rates that characterized the previous three decades.

The widening growth differential between India and China has prompted multinational corporations to accelerate diversification strategies, with India emerging as the primary alternative manufacturing and services hub.

Foreign direct investment into India reached $83 billion in 2025, a 27% increase from the previous year, while China recorded its first decline in FDI in two decades, dropping to $143 billion from $181 billion in 2024.

• China's growth slowed to 4.6% in 2025, projected at 4.2% for 2026
• India's growth projection of 6.8% places it 2.6 percentage points above China
• India attracted $83 billion in FDI in 2025, a 27% increase year-on-year
• China recorded first FDI decline in two decades, dropping to $143 billion
• 37% of surveyed multinational corporations plan to shift production from China to India

The OECD analysis identifies several factors behind China's slowdown, including an aging population, declining productivity growth, excessive debt levels in the property sector, and geopolitical tensions that have disrupted technology supply chains.

India benefits from a demographic dividend, with 65% of its population under 35 years old compared to just 38% in China, providing a growing workforce and expanding consumer market.

Labor costs also favor India, with manufacturing wages averaging $3.50 per hour compared to $6.80 in China, making Indian production increasingly competitive for labor-intensive industries.

The report notes that India has improved its position in the World Bank's Logistics Performance Index by 12 places since 2020, reducing the infrastructure gap that previously hindered its competitiveness against China.

Meanwhile, China's property sector crisis continues to drag on growth, with housing starts down 22% in 2025 and property investment declining 15%, creating ripple effects across related industries and local government finances.

This structural divergence has prompted several major technology companies to announce new manufacturing facilities in India, including Apple's plan to produce 25% of its iPhones in India by 2027, up from just 7% in 2023.

Global Supply Chain Reshoring Accelerates India's Manufacturing Ambitions

The global restructuring of supply chains following pandemic disruptions and geopolitical tensions has accelerated India's emergence as a preferred manufacturing destination, according to industry executives and supply chain analysts.

The OECD report identifies supply chain diversification as a key factor driving India's manufacturing growth, with companies increasingly adopting China-plus-one strategies to mitigate risk.

Three hundred and forty-seven multinational companies have established or announced new manufacturing facilities in India since 2022, spanning sectors including electronics, pharmaceuticals, medical devices, and specialty chemicals.

The government's production-linked incentive scheme has been particularly effective in attracting semiconductor manufacturing, with three fabrication facilities announced in the past 18 months representing $28 billion in investment.

• 347 multinational companies established or announced facilities in India since 2022
• Semiconductor manufacturing investments total $28 billion across three facilities
• Medical devices production capacity increased 45% since 2022
• Pharmaceutical exports grew 23% in 2025, reaching $27 billion
• Electronics manufacturing employment increased 380,000 jobs in the past two years

The reshoring trend extends beyond simple cost considerations to encompass supply chain resilience, geopolitical risk management, and access to India's growing domestic market of 1.4 billion consumers.

India's domestic consumption has grown 8.2% annually since 2022, creating a substantial local market that provides a buffer against global demand fluctuations.

The OECD report specifically highlights India's improving business environment, noting that the country has climbed 23 positions in the World Bank's Ease of Doing Business rankings since 2020, driven by regulatory reforms and digital infrastructure improvements.

Logistics costs have decreased from 14% of GDP to 11% over the past three years as highway construction accelerated and port modernization improved efficiency, making Indian exports more competitive globally.

India's free trade agreement negotiations, including the proposed deal with the European Union and the recently concluded pact with the European Free Trade Association, are expected to further boost manufacturing exports by reducing tariff barriers.

These structural improvements explain why India's manufacturing export growth reached 12% in 2025, more than double the global average of 5.3%, and why the OECD projects continued outperformance through 2027.

Infrastructure Investments Power India's Growth Trajectory

India's unprecedented infrastructure investment program has laid the foundation for sustained economic expansion, with capital expenditure reaching $230 billion in fiscal 2025, representing 3.4% of GDP, according to government budget documents.

The infrastructure push encompasses transportation networks, energy systems, digital connectivity, and urban development, creating both immediate economic stimulus and long-term productivity gains.

Highway construction has accelerated to 37 kilometers per day in 2025, up from 22 kilometers daily in 2020, while railway track electrification has reached 90% of the broad-gauge network, reducing logistics costs and transit times.

• Infrastructure investment reached $230 billion in fiscal 2025, 3.4% of GDP
• Highway construction accelerated to 37 kilometers per day
• Railway track electrification reached 90% of the broad-gauge network
• Renewable energy capacity increased 28% since 2022, reaching 180 gigawatts
• Digital infrastructure investment totaled $45 billion over the past three years

The energy sector transformation represents another critical component of India's growth strategy, with renewable energy capacity increasing 28% since 2022 to reach 180 gigawatts, representing 43% of total installed power capacity.

Solar power capacity has tripled to 72 gigawatts, while wind energy reached 45 gigawatts, reducing India's dependence on imported fossil fuels and lowering energy costs for industry.

Digital infrastructure development has been equally impressive, with fiber optic connectivity reaching 620,000 villages and 5G networks covering 700 cities across the country, enabling digital services and e-commerce penetration in rural markets.

The OECD report identifies these infrastructure investments as a key differentiator between India and other emerging markets, noting that infrastructure quality in India now exceeds that of Brazil, Indonesia, and South Africa in most categories.

Urban development initiatives have accelerated as well, with 100 smart cities in various stages of development and metro rail systems operational in 20 cities, up from just 8 in 2020, improving urban productivity and quality of life.

These investments have created approximately 12 million jobs directly and indirectly, boosting household incomes and consumption, which in turn drives further economic expansion—a virtuous cycle that the OECD expects to continue through 2027 and beyond.