New Delhi: Despite rising trade tensions and the impact of steep U.S. tariffs, India is projected to emerge as the world’s second-largest economy in purchasing power parity (PPP) terms by 2038. A recent report by EY forecasts that India’s GDP in PPP terms could reach $34.2 trillion by then, surpassing the United States and standing only behind China.

India’s economic trajectory

The EY Economy Watch report suggests that India’s GDP in PPP terms could hit $20.7 trillion by 2030, before surging to $34.2 trillion by 2038. This projection rests on medium-term IMF forecasts, which estimate India’s growth at around 6.5% annually between 2028 and 2030, far outpacing the U.S. growth forecast of 2.1%.

India is already the third-largest economy in PPP terms and the fifth-largest by nominal GDP, at about $3.94 trillion in 2024. If the growth momentum continues, the country could significantly strengthen its role in shaping global trade, technology, and investment flows over the next decade.

Structural strengths underpinning growth

The report highlights several long-term strengths that position India favourably:

  • Demographics: With a median age of just 28.8 years in 2025, India retains a strong demographic dividend.

  • Savings and investment: Higher domestic savings and robust investment rates will help sustain long-term growth.

  • Fiscal discipline: Government debt-to-GDP is expected to decline from 81.3% in 2024 to 75.8% by 2030, improving fiscal stability.

  • Reforms: Policy measures like GST, Insolvency and Bankruptcy Code, UPI-driven digital inclusion, production-linked incentives, and infrastructure modernisation have set the foundation for growth.

    • According to EY’s analysis, India’s young and skilled workforce, coupled with its structural reforms, will allow it to withstand global volatility and sustain high growth rates.

    Trump tariffs pose near-term challenge

    The optimistic outlook comes even as India faces short-term challenges from the U.S., which recently increased tariffs on Indian goods to 50%. This decision, linked to India’s continued import of discounted Russian oil, is expected to affect labour-intensive sectors such as textiles and gems.

    Economists, however, suggest that the actual impact may be limited. With countermeasures and policy support, the drag on India’s growth could be contained to around 10 basis points of GDP.

    Looking ahead

    The EY report notes that India’s steady rise is underpinned by its resilience against external shocks, expanding domestic demand, and proactive reform agenda. While the U.S. tariffs may pose temporary headwinds, India’s structural advantages are expected to ensure that long-term growth remains strong.

    If these projections hold, India could overtake the U.S. to become the world’s second-largest economy by PPP within little more than a decade, marking a major milestone in its economic journey.