Guess which country is set to become the world’s second-largest economy by 2038? Hint: It’s not who you might expect! Driven by a young workforce and strong domestic demand, this nation is rewriting the rules of global finance. What does this mean for the future of the world economy?
India is poised for a significant transformation, with projections indicating its rise to become a dominant global economic superpower within the next two decades, reshaping the international financial landscape.
A recent report by EY, highlighted in India Narrative, forecasts India becoming the world’s second-largest economy in Purchasing Power Parity (PPP) terms by 2038, potentially reaching a GDP of $34.2 trillion. This remarkable economic growth signifies more than just a change in rankings; it heralds the emergence of a new heavyweight with immense power to influence global markets and trade narratives.
India’s ascent is underpinned by robust economic fundamentals, including high savings and investment rates, a favorable demographic structure, and a sustainable fiscal position. The August 2025 issue of EY Economy Watch emphasizes India’s dynamism among the world’s largest economies, setting a trajectory for sustained expansion.
A critical factor in this trajectory is India’s youthful population, boasting a median age of 28.8 years in 2025, significantly lower than its peers. Coupled with the second-highest savings rate globally and a projected decline in its government debt-to-GDP ratio from 81.3% in 2024 to 75.8% by 2030, India demonstrates formidable fiscal strength that distinguishes it from other major economies.
The International Monetary Fund (IMF) further supports these projections, estimating India’s economy could reach $20.7 trillion in PPP rankings by 2030. Understanding PPP, or Purchasing Power Parity, is crucial here; it provides a more accurate comparison of economic output and living standards by adjusting for differing price levels across nations.
Despite facing global uncertainties like tariff pressures and a slowing international trade environment, India’s resilience is largely attributed to its strong reliance on domestic demand. This internal market strength, combined with burgeoning capabilities in modern technologies, acts as a powerful buffer against external economic shocks, ensuring consistent India economy progress.
D.K. Srivastava, Chief Policy Advisor at EY India, notes that India’s comparative advantages—its young and skilled workforce, strong saving and investment rates, and manageable debt profile—will enable it to sustain high growth even in volatile global conditions. He underscores that by enhancing resilience and advancing critical technologies, India is well-positioned to achieve its ‘Viksit Bharat’ aspirations by 2047, further solidifying its role as a global superpower.
Beyond PPP, India is also projected to become the third-largest economy in market exchange rate terms by 2028, surpassing Germany. While potential U.S. tariffs could impact nearly 0.9 percent of India’s GDP, the EY report suggests that this impact can be limited to just 0.1 percentage point on GDP growth through strategic countermeasures such as export diversification, strengthening domestic demand, and fostering new trade partnerships, leveraging its demographic dividend.
The comprehensive analysis highlights India’s multi-faceted approach to economic advancement, driven by internal strengths and strategic planning. These concerted efforts are crucial for India to not only meet but exceed its ambitious economic targets, paving the way for a future where it stands as a cornerstone of the global economy.
