India's Economic Ascent: May become world's second-largest economy by 2038: EY report

India’s economy is projected to reach $20.7 trillion (PPP) by 2030 and $34.2 trillion by 2038, potentially becoming the second-largest economy globally. EY’s 2025 report highlights India’s strong fundamentals, including high savings, skilled workforce, and advanced technology capabilities, enabling resilience amid global challenges like U.S. tariffs. Though these tariffs may impact export sectors, strategic measures could minimize effects on GDP. With robust trade ties and sustained growth policies, India is on track to achieve its development goals and global prominence by 2047.

India’s economy is on track to achieve remarkable milestones in the coming years, with estimates placing its GDP at $20.7 trillion in purchasing power parity (PPP) terms by 2030, according to a recent report by EY. Looking further ahead, the report projects that India could emerge as the world’s second-largest economy by 2038, boasting a GDP of $34.2 trillion.

The EY Economy Watch report, released in August 2025, highlights India as one of the most dynamic of the five largest global economies. This dynamism is attributed to robust economic fundamentals, including high savings and investment rates, favorable demographics, and a sustainable fiscal framework.

India’s Growth Story Amid Global Uncertainties

Despite global challenges such as tariff pressures and a slowdown in international trade, India’s resilience stems from its reliance on domestic demand and growing expertise in advanced technologies. The report underscores that India’s economic profile, when measured in PPP terms, offers a more accurate reflection of its size and influence than market exchange rates.

For fiscal year 2025 (FY25), the International Monetary Fund (IMF) estimates India’s GDP at $14.2 trillion in PPP terms, which is about 3.6 times larger than when calculated using market exchange rates. This makes India the third-largest economy globally, following China and the United States.

Looking further into the future, EY’s analysis suggests that if India maintains an average growth rate of 6.5% while the U.S. grows at 2.1%, India could surpass the U.S. in PPP terms by 2038. Additionally, India is expected to become the third-largest economy in market exchange rate terms by 2028, overtaking Germany.

Strengths and Challenges

D.K. Srivastava, Chief Policy Advisor at EY India, emphasized the country’s inherent strengths, including its young and skilled workforce, high savings and investment rates, and a sustainable debt profile. These factors position India to sustain high growth rates even in an unpredictable global environment.

“By building resilience and advancing capabilities in critical technologies, India is well-positioned to achieve its Viksit Bharat [Developed India] aspirations by 2047,” Srivastava stated.

However, the report also cautions about the potential impact of U.S. tariffs on Indian exports. A steep 50% tariff on certain Indian goods entering the U.S., effective from August 27, 2025, could significantly affect export sectors such as textiles, gems and jewelry, shrimp, leather, and machinery. Collectively, these sectors represent over $48 billion worth of annual exports.

Managing the Impact of U.S. Tariffs

The report estimates that U.S. tariffs could potentially impact approximately 0.9% of India’s GDP. However, the actual effect depends on factors such as the elasticity of demand for Indian goods in the U.S. and India’s ability to diversify its export markets.

Assuming that one-third of the impact translates into reduced demand, the overall impact is expected to be around 0.3% of GDP. To mitigate this, India could implement countermeasures, such as boosting domestic demand for goods currently exported and reducing overall imports.

With these measures, EY predicts the impact of tariffs could be minimized to just 0.1% of GDP, reducing India’s anticipated 6.5% growth rate for FY2026 by only 10 basis points.

Trade Relations and Future Prospects

The U.S. remains India’s largest trading partner, accounting for 20% of India’s $437.42 billion in goods exports during 2024-25. The bilateral trade in goods between the two nations stood at $131.8 billion during the same period, with Indian exports to the U.S. valued at $86.5 billion.

While the tariffs present challenges, India’s economic fundamentals, combined with strategic policy measures, are expected to maintain the country’s growth trajectory. As India continues to strengthen its technological capabilities and foster innovation, it is well on its way to becoming a leading global economic powerhouse by 2047.