India's economic trajectory is poised for significant expansion, potentially reaching the position of the world's second-largest economy by 2038, according to a recent report by EY. The report, released on Wednesday, August 27, 2025, projects India's GDP to reach $34.2 trillion in terms of purchasing power parity (PPP) by 2038. This projection underscores the nation's potential to overtake the United States in economic size.

Key Drivers of Growth

Several factors contribute to this optimistic outlook. India possesses a young and skilled workforce, a high savings rate, and a relatively sustainable debt profile, distinguishing it from its peers. The median age in India is 28.8 years in 2025, highlighting its demographic advantage. Moreover, the government's debt-to-GDP ratio is projected to decline from 81.3% in 2024 to 75.8% by 2030, showcasing improved fiscal sustainability.

Furthermore, structural reforms such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), and production-linked incentives are strengthening competitiveness across various industries. Public investment in infrastructure and the adoption of emerging technologies like artificial intelligence, semiconductors, and renewable energy are also setting the stage for long-term economic resilience. Government spending, low interest rates, and revival of consumer demand are also expected to drive economic growth.

India's Current Economic Standing

The International Monetary Fund (IMF) estimates India's economy could reach $20.7 trillion (PPP) by 2030. India is already the third-largest economy in PPP terms, with a GDP of $14.2 trillion in FY25, which is about 3.6 times larger than when measured in market exchange rates. By 2028, India is projected to become the third-largest economy in market exchange rate terms, surpassing Germany.

Challenges and Countermeasures

Despite the positive outlook, India faces certain challenges. Steep tariffs imposed by the United States on Indian exports, including textiles, gems and jewellery, shrimp, leather, chemicals, and machinery, could impact nearly 0.9% of India's GDP. However, the EY report suggests that the impact on GDP growth can be limited to about 0.1 percentage point with appropriate countermeasures such as export diversification, stronger domestic demand, and advancing trade partnerships. The government is also exploring measures like GST reforms and export aid to counter the impact of these tariffs.

Reforms and Policy Initiatives

The Indian government is actively implementing policies to boost economic growth and mitigate potential risks. A simplified two-tier GST system and income tax cuts are expected to stimulate consumption. The government is also focusing on next-generation reforms to reduce business compliance costs and eliminate unnecessary regulations. These reforms aim to create a more business-friendly environment and attract foreign capital.

The Path to Viksit Bharat by 2047

India's projected economic trajectory aligns with its long-term vision of becoming a developed nation, or Viksit Bharat, by 2047. Achieving this vision requires sustained economic growth, increased investment, and greater labor force participation. The World Bank suggests that India needs to grow by an average of 7.8% over the next 22 years to reach high-income status by 2047. This requires faster and more inclusive growth across states, increased investment, higher labor force participation, and accelerated productivity growth.

India's economic growth model, which relies heavily on domestic consumption, distinguishes it from many export-dependent economies. This provides a buffer against external economic shocks and reduces vulnerability to international trade tensions. The country's focus on infrastructure development, urbanization, and expanding the middle class further contributes to its economic potential.