India to become world’s 2nd largest economy by 2038?

New Delhi: India is poised to emerge as the world’s second-largest economy in purchasing power parity (PPP) terms by 2038, with its GDP projected to touch USD 34.2 trillion, according to a report by EY based on IMF projections.

EY noted that India’s unique strengths — a youthful workforce, robust savings and investment rates, and a declining debt-to-GDP ratio — set it apart from other major economies such as China, the US, Germany, and Japan.

By 2030, India’s economy is expected to grow to USD 20.7 trillion (PPP). Comparatively, while China will lead in size with USD 42.2 trillion, it faces challenges from an ageing population and high debt. The US, though resilient, is constrained by debt exceeding 120% of GDP. Germany and Japan, despite their advanced economies, are limited by high median ages and dependence on global trade.

In contrast, India’s median age of just 28.8 years in 2025, strong domestic demand, and sustainable fiscal trajectory make it the most promising growth story of the coming decades. The country’s government debt-to-GDP ratio is also expected to decline from 81.3% in 2024 to 75.8% by 2030.

“India’s comparative strengths, its young and skilled workforce, robust saving and investment rates, and relatively sustainable debt profile will help sustain high growth even in a volatile global environment,” said DK Srivastava, Chief Policy Advisor, EY India.

Structural reforms such as GST, Insolvency and Bankruptcy Code (IBC), financial inclusion through UPI, and production-linked incentives (PLI) are boosting competitiveness across industries. Meanwhile, public investment in infrastructure and the adoption of emerging technologies — including AI, semiconductors, and renewable energy — are expected to strengthen resilience further.

EY also projected that India will become the world’s third-largest economy in market exchange rate terms by 2028, overtaking Germany.

Even with potential challenges like US tariffs impacting 0.9% of GDP, EY estimated the drag on growth would be limited to just 0.1 percentage points, thanks to measures such as export diversification, stronger domestic demand, and advancing trade partnerships.

With these favorable conditions, India appears well-placed to accelerate towards its Viksit Bharat 2047 aspirations and consolidate its role as a global economic powerhouse.