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

Among the largest economies, India stands out with a median age of 28.8 years in 2025, the second-highest savings rate, and a government debt-to-GDP ratio projected to decline from 81.3 per cent in 2024 to 75.8 per cent by 2030 unlike peers where debt levels are rising. As per the IMF, India’s economy could reach $20.7 trillion (PPP) by 2030.

India is emerging as one of the most dynamic among the world’s five largest economies, with strong economic fundamentals including high savings and investment rates, favourable demographics, and a sustainable fiscal position. Despite global uncertainties such as tariff pressures and slowing trade, India’s resilience stems from its reliance on domestic demand and increasing capabilities in modern technologies.

Compared to the US, China, Germany, and Japan, India is uniquely placed. While China leads in overall size with a projected $42.2 trillion economy (PPP) by 2030, its ageing population and rising debt are challenges. The US remains strong but faces high debt levels exceeding 120 per cent of GDP and slower growth rates. Germany and Japan, though advanced, are constrained by high median ages and heavy reliance on global trade. In contrast, India combines youthful demographics, rising domestic demand, and a sustainable fiscal outlook, giving it the most favorable long-term growth trajectory, the report stated.

“India’s comparative strengths, its young and skilled workforce, robust saving and investment rates, and relatively sustainable debt profile will help sustain high growth even in a volatile global environment. By building resilience and advancing capabilities in critical technologies, India is well-placed to move closer to its Viksit Bharat aspirations by 2047,” commenting on India’s position, DK Srivastava, chief policy advisor, EY India, said.

India’s trajectory is reinforced not just by demographics but also by structural reforms and resilient fundamentals. High saving and investment rates are fueling capital formation, while fiscal consolidation is improving sustainability. Reforms such as GST, IBC, financial inclusion through UPI, and production-linked incentives are strengthening competitiveness across industries. At the same time, public investment in infrastructure and adoption of emerging technologies like AI, semiconductors, and renewable energy are setting the stage for long-term resilience.

India is also projected to become the third-largest economy in market exchange rate terms by 2028, overtaking Germany. While US tariffs may affect nearly 0.9 per cent of India’s GDP, their impact on GDP growth can be contained to just 0.1 percentage point with appropriate countermeasures like export diversification, stronger domestic demand, and advancing trade partnerships.

ALCHEMPro News Desk (RR)