India is projected to become the world’s second-largest economy in purchasing power parity (PPP) terms by 2038, according to the August 2025 edition of EY Economy Watch report.
The report, based on IMF forecasts and comparative analysis of major global economies, outlines India’s long-term growth trajectory, highlighting its demographic advantages, fiscal discipline, and structural reforms as key drivers of economic expansion.
EY Report: Growth Projections and Economic Size
EY estimates that India’s GDP in PPP terms could reach $20.7 trillion by 2030 and grow further to $34.2 trillion by 2038.
This would place India ahead of the United States in PPP rankings, making it the second-largest global economy after China.
The report emphasizes that PPP is a more meaningful measure for cross-country comparisons as it adjusts for differences in price levels and purchasing power across nations.
In market exchange rate terms, India is expected to become the third-largest economy by 2028, overtaking Germany.
This milestone reflects India’s consistent growth and its ability to outperform other major economies in terms of real GDP expansion.
EY Report: Comparative Strengths Among Major Economies
The EY report compares India with the United States, China, Germany, and Japan—currently the five largest economies.
While China is projected to maintain its lead with a $42.2 trillion economy by 2030, its ageing population and rising debt levels pose significant challenges.
The United States, though resilient, faces high government debt exceeding 120% of GDP and slower growth rates.
Germany and Japan are constrained by older populations and heavy reliance on global trade.
In contrast, India stands out with a median age of 28.8 years in 2025, the second-highest savings rate among the five economies, and a government debt-to-GDP ratio projected to decline from 81.3% in 2024 to 75.8% by 2030.
EY Report: Domestic Demand and Investment Trends
India’s economic resilience is attributed to its strong domestic demand and increasing capabilities in modern technologies.
The report notes that India’s final consumption expenditure to GDP ratio has remained high—between 71.4% and 72.7%—from FY20 to FY23.
Additionally, gross capital formation has consistently exceeded 30%, except during the pandemic year FY21.
These indicators suggest that India’s growth is primarily fueled by internal consumption and investment.
This reduces its reliance on external trade, making the economy less vulnerable to global shocks.
Impact of US Tariffs and Mitigation Strategies
The report also addresses the potential impact of US tariffs on Indian exports.
It estimates that nearly 0.9% of India’s GDP could be affected by these tariffs.
However, the adverse impact on GDP growth can be minimized with appropriate countermeasures.
Measures like export diversification, boosting domestic demand, and strengthening trade partnerships could limit the slowdown to just 0.1 percentage point.
This suggests that India’s growth trajectory remains largely intact despite external pressures, including trade tensions and tariff barriers.
Policy Outlook and Long-Term Vision
Commenting on the findings, D.K. Srivastava, Chief Policy Advisor at EY India, highlighted India’s young and skilled workforce, along with strong savings and investment rates.
He added that the country’s relatively sustainable debt profile positions it to maintain high growth despite global volatility.
He added that India is well-positioned to advance toward its “Viksit Bharat” (Developed India) aspirations by 2047.
The report credits India’s structural reforms—such as GST, IBC, financial inclusion via UPI, and production-linked incentive schemes—for enhancing competitiveness.
These reforms have also contributed to improving the country’s fiscal sustainability.
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