India may become world's second-largest economy by 2038: EY report

India is projected to become the world’s second-largest economy by 2038, according to EY’s latest Economy Watch report. The study estimates that India’s Gross Domestic Product (GDP) could reach Rs. 18,13,94,100 crore (US$ 20.7 trillion) in purchasing power parity (PPP) terms by 2030 and expand further to Rs. 29,96,94,600 crore (US$ 34.2 trillion) by 2038, overtaking the United States (US). At present, India is the third-largest economy in PPP terms, valued at Rs. 12,44,34,600 crore (US$ 14.2 trillion) in FY25, nearly 3.6 times larger than its GDP at market exchange rates. Strong fundamentals, including high savings and investment rates, favourable demographics, and a sustainable fiscal position, are expected to support long-term growth. By 2028, India is also projected to surpass Germany to become the third-largest economy in market exchange rate terms.

The report emphasises that India’s resilience stems from domestic demand and growing strength in modern technologies. However, global challenges such as steep US tariffs on Indian exports pose risks. The 50% tariff, effective August 27, 2025, covers over Rs. 4,20,624 crore (US$ 48 billion) worth of exports, including textiles, gems and jewellery, shrimp, leather, chemicals, and machinery. EY noted that nearly 0.9% of India’s GDP may be exposed to these tariffs, but the effective impact could be around 0.3% if one-third translates into reduced demand. With countermeasures such as boosting domestic demand and reducing imports, the impact can be further contained to about 0.1% (10 basis points). Even under these pressures, India’s medium-term growth is expected to remain robust at 6.4–6.5%, aligning with its Viksit Bharat vision for 2047.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.