India is expected to become the world’s second-largest economy by 2038, reaching a GDP of $34.2 trillion in purchasing power parity terms, according to a new report from EY. The report uses some International Monetary Fund data and highlights India’s strong economic fundamentals, including a young population, saving rates, and an improving government debt profile.
By 2030, India’s TDP in PPP terms could reach $20.7 trillion with annual growth rates of around 6.5% continuing through 2038. EY experts say India’s young workforce and high investment patterns make the country a value position for growth.
Other major economies face challenges. China leads but struggles with an ageing population and rising debt while the United States has exceeded 120% of GDP. Germany and Japan are limited by an ageing population and dependence on international trade.
US Tariffs Post Short-Term Trade Headwinds
The long-term growth outlook comes as India faces immediate trade challenges from America. On August 27, 2025, the United States imposed 50% tariffs on Indian goods affecting about $48 billion in exports. Sections which were impacted, including textiles and apparel, gems and jewellery, shrimp and carpet.
Despite these tariffs, EY notes, the effect on India’s GDP will be limited to about 0.9% with only a 0.1% point reduction in growth. Measures like export diversification, strengthening domestic demand, and building new trade partnerships can help with the short-term impact.
Reforms And Investments Drive Long-Term Economic Strength
India’s economic rise is supported by key structural reforms. Policies like the goods and services tax (GST), the insolvency and bankruptcy code, UPI-driven financial inclusion, and production-linked incentives have improved business competitiveness for India.
Public investment in infrastructure, renewable energy, and semiconductors is also creating a very strong foundation for long-term growth for India. By the year 2028, India is expected to become the third largest economy by market exchange rates, overtaking German,y aligning the country’s Viksit Bharat goal of becoming a developed country by 2047.
EY experts say that while global challenges remain, India’s combination of reforms, young workforce, and strong domestic demand ensures resilience and steady economic growth.
FAQs
- When will India become the world’s second-largest economy?
India is projected and expected to become the world’s second-largest economy by the year 2038 in purchasing power parity terms.
- What will India’s GDP be in 2038?
India’s GDP is expected to reach $34.2 trillion in PPP terms by 2038.
- How will US tariffs affect India?
The US tariff will affect $48 billion of Indian exports and could slightly reduce the growth.
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