India on Track to bag Second-Largest Economy Status by 2038: EY Report At present, India is already the third-largest economy in terms of PPP, behind only China and the US.

India's economy is on track to achieve significant growth over the next decade, according to a report released on Wednesday by EY reports. The study reveals that in terms of purchasing power parity (PPP), India's gross domestic product (GDP) could reach USD 20.7 trillion by 2030. If the current pace continues, India may emerge as the world's second-largest economy by 2038, with GDP projected to touch USD 34.2 trillion.

The report, titled EY Economy Watch August 2025 issue, examines the comparative profile of the world's five largest economies at a time of uncertainty surrounding global trade. It highlights that India is emerging as one of the most dynamic economies among the top five, supported by high savings and investment rates, a young workforce, favourable demographics, and a relatively stable fiscal position.

At present, India is already the third-largest economy in terms of PPP, behind only China and the US. The IMF has estimated India's GDP in 2024-25 at 14.2 trillion US dollars in PPP terms. This is about 3.6 times larger than its size when measured in market exchange rates.

Looking ahead, the report said that if India maintains an average growth rate of 6.5 per cent and the US grows at about 2.1 per cent between 2028 and 2030, India could surpass the US economy in PPP terms by 2038. On a market exchange rate basis, India is projected to become the world's third-largest economy by 2028, overtaking Germany.

D K Srivastava, Chief Policy Advisor at EY India, noted, "India's comparative strengths, including a young and skilled workforce, robust saving and investment rates, and a relatively sustainable debt profile, will help maintain momentum 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."

While the long-term outlook remains positive, India is currently facing trade-related challenges. The report pointed to the impact of higher tariffs imposed by the US on selected Indian goods. From August 27, Indian exports worth more than USD 48 billion will be subject to steep duties, with tariffs rising to as high as 50 per cent on several products.

The affected sectors include textiles and clothing, gems and jewellery, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery. On the other hand, industries such as pharmaceuticals, energy products, and electronic goods are excluded from the tariff hike.

The US accounted for about 20 per cent of India's goods exports in 2024-25, amounting to 86.5 billion US dollars out of total exports of USD 437.42 billion. Imports from the US stood at USD 45.3 billion during the same period, taking the overall trade in goods between the two nations to USD 131.8 billion. The US has been India's largest trading partner since 2021-22.

The EY report stated that nearly 0.9 per cent of India's GDP may be affected by the US tariff action. However, the actual impact would depend on the elasticity of demand for Indian products in the US and India's ability to redirect its exports to other markets. Assuming about one-third of the impact results in a fall in demand, the overall effect is estimated at 0.3 per cent of GDP.

Countermeasures such as reducing imports and boosting domestic demand could help mitigate this pressure. With appropriate policies, the adverse effect can be limited to about 0.1 per cent of GDP. This translates into a possible reduction of only 10 basis points in the country's expected growth rate of 6.5 per cent for 2025-26.

According to EY, India's average growth rate in the medium term may be slightly lower at 6.4 per cent due to tariff-related challenges. The report emphasises that the overall economic trajectory remains strong, and India is expected to maintain its position as one of the fastest-growing major economies in the world.