New Delhi (Desk), 28 August : India’s economic growth story continues to gain momentum, with a new report projecting that the country could become the second-largest economy in the world by 2038, with a GDP of $34.2 trillion. The findings come from the August 2025 edition of EY Economy Watch, which highlights India’s strong fundamentals and long-term growth potential.

Projected Growth Path

According to the report, India’s economy is set to touch $20.7 trillion by 2030 before expanding further to $34.2 trillion by 2038. This growth trajectory would position India just behind China, while surpassing several other advanced economies.

Currently, India’s nominal GDP stands at around $4.19 trillion, making it the fourth-largest economy globally. However, if the country maintains an average growth rate of 6.5% between 2028 and 2030, as forecasted by the International Monetary Fund (IMF), it may even surpass the US economy in Purchasing Power Parity (PPP) terms by 2038.

Demographics and Savings Driving Growth

The report highlights favourable demographics as a key strength. With a median age of 28.8 years, India has one of the youngest workforces in the world. This demographic dividend, combined with high savings and investment rates, is expected to fuel steady growth in the coming decades.

Government finances are also improving. India’s debt-to-GDP ratio, which stood at 81.3% in 2024, is projected to fall to 75.8% by 2030, strengthening economic stability and investor confidence.

Global Comparison

Among major economies, China is projected to achieve a GDP of $42.2 trillion (PPP) by 2030 but may face constraints from an ageing population and rising debt. The US economy, although resilient, is weighed down by high government debt exceeding 120% of GDP and relatively slower growth at 2.1%. Economies like Germany and Japan continue to struggle with ageing populations and heavy reliance on global trade.

The report also explains that when measured in PPP terms, India’s purchasing power makes its economy appear larger. Simply put, $1 in India buys more goods and services than $1 in the US, giving India a comparative advantage.

Structural Reforms at the Core

EY notes that India’s growth is being reinforced by structural reforms. Initiatives like the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), UPI-driven financial inclusion, and production-linked incentive (PLI) schemes have enhanced competitiveness across industries.

India is also expected to become the third-largest economy in market exchange rate terms by 2028, overtaking Germany. Even external challenges, such as US tariffs affecting around 0.9% of GDP, are unlikely to cause significant setbacks. The report estimates that such measures would slow India’s growth by just 0.1 percentage point, thanks to robust domestic demand and export diversification.

Expert View

“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 D.K. Srivastava, Chief Policy Advisor at EY India.

He added that by building resilience and advancing capabilities in critical technologies, India is well-positioned to move closer to its Viksit Bharat aspirations by 2047.