India May Emerge as Second-Largest Economy by 2038 in PPP Terms: EY Report

According to an EY report, in terms of the Purchasing Power Parity (PPP), India is projected to emerge as the second-largest economy in the world with a GDP of USD 34.2 trillion by 2038. The young population, high savings rate, and a bettering government debt-to-GDP ratio contributes to the economic trend of the country. Further, the structural reforms, investments in AI, renewable energy and major sectors in technology will go a long way in improving India. India will also be ranked as the third-largest economy in terms of market exchange rate, by 2028 and this is after overtaking Germany.

Context:

• The EY report highlights the fact that India has demographic advantages, including the presence of a young population, good savings, fiscal discipline, and the positive debt-to-GDP ratio.
• India is ideally placed to realize long-term economic growth as a result of the favorable demographic profile, structural reforms, and investments in such emerging industries as AI and renewable energy.

Key Points:

India’s Projected GDP and Economic Position by 2038

• India is predicted to be the second-largest economy by 2038 with a GDP of USD 34.2 trillion in PPP terms.
• IMF estimates show that the GDP of India will be USD 20.7 trillion (PPP) in 2030.

India's Competitive Advantages

• Median Age: India has in 2025 a median age of 28.8 years, one of the youngest of the major economies, providing a young labour force.
• High Savings Rate: India has the second-highest savings rate in the world which makes it invest and build capital.
• Government Debt: The ratio of debt to GDP of India continues to decrease between 2024 and 2030 to 75.8 percent compared to increasing debt levels in other economies.

Challenges for Other Major Economies

• China is estimated to be the biggest economy with USD 42.2 trillion (PPP) by 2030, however, it is also experiencing some problems like population aging and growing debt.
• The US has a high debt to GDP ratio of over 120 that may pull the growth down in future.
• Germany and Japan face constraints due to high median ages and their reliance on global trade for economic stability.

The Long-term Growth Potential in India.

• Young Demographics: The young demographics of India and the increasing domestic demand are the determinants of long-term growth.
• Sustainable Fiscal Perspective: The economic growth of India is poised to be sustained due to its good fiscal discipline and fiscal reforms such as GST, IBC and financial inclusion via UPI.
• The production-linked Incentives (PLI) schemes encourage the competitiveness of India in other sectors further.

Impact of Emerging Technologies and Infrastructure Investments

• The future economic potential of India will be pushed by its interest in such new technologies as AI, semiconductors, and renewable energy.
• Infrastructure spending, especially within areas of energy and transport, as well as digital connectivity, will increase resiliency in the economy over the long-term.
• The current investment in these sectors puts India at a position to realize its Viksit Bharat (developed nation) goal by 2047.

India’s Projected Position by 2028

• By the year 2028, India is projected to rise as the third-largest economy among the industrialized nations based on market exchange rates; it would do so ahead of Germany.
• Business tariffs have a potential impact of about 0.9% on the GDP of India, although countermeasures will minimize its effects in the form of export diversification, high domestic demand, and improved trade relations.

Conclusion:

Favourable demographics, high rate of savings, investment capacity, and fiscal discipline of India make the country the next leading economy in terms of PPP by 2038. The efforts by the country to concentrate on new technologies, structural changes and build infrastructure will further spur the growth. India is expected to outshine Germany and become a global economic giant by 2028 in line with its aim of achieving Viksit Bharat by 2047. This trend shows clearly that India has the competitive advantages in the global economy and it is poised to experience prolonged prosperity and influence in the next few decades.