India is projected to become the world's second-largest economy by 2038, with a GDP of $34.2 trillion in terms of purchasing power parity (PPP), according to a recent report by EY. The August 2025 issue of EY Economy Watch highlights India's strong economic fundamentals and favorable demographics as key drivers of this growth.

The report, which relies on projections from the International Monetary Fund (IMF), estimates that India's economy could reach $20.7 trillion (PPP) by 2030, surpassing the United States, Germany, and Japan. While China is expected to remain the largest economy with $42.2 trillion (PPP) by 2030, it faces challenges such as an aging population and increasing debt. The United States, despite its resilience, is constrained by high debt levels exceeding 120% of GDP and slower growth rates. Germany and Japan, while advanced economies, face demographic pressures and a heavy reliance on global trade.

India's unique advantage lies in its youthful population, with a median age of 28.8 years in 2025, as well as its high savings and investment rates. Furthermore, the government's debt-to-GDP ratio is projected to decline from 81.3% in 2024 to 75.8% by 2030, a stark contrast to rising debt levels in other major economies.

DK Srivastava, Chief Policy Advisor at EY India, emphasized that India's young and skilled workforce, robust savings and investment rates, and relatively sustainable debt profile will support high growth even in a volatile global environment. He added that structural reforms, resilient fundamentals, and investments in critical technologies will further bolster growth.

In addition to its favorable demographics and fiscal outlook, India is also making strides in modern technologies. By 2028, India is projected to overtake Germany and become the world's third-largest economy in market exchange rate terms. The EY report aligns India's growth trajectory with its long-term vision of becoming a developed nation, or Viksit Bharat, by 2047.

Even with challenges such as recent US tariffs on Indian exports, India's economic resilience is expected to persist. While the tariffs, which went into effect on August 27, 2025, cover a significant portion of Indian exports, the report suggests that the impact on India's GDP growth can be mitigated through countermeasures such as boosting domestic demand and reducing imports. With suitable policies, the impact of the US tariffs could be limited to a reduction of just 10 basis points in India's expected growth.

Overall, the EY report paints a promising picture for India's economic future. The country's strong fundamentals, favorable demographics, and commitment to reforms and technological advancements position it for continued growth and a rise to become the world's second-largest economy by 2038.