EY August 2025 Report: India Projected to Become World’s 2nd-Largest Economy In PPP Terms By 2038

In August 2025, Ernst & Young (EY) released the ‘August 2025 issue of EY Economy Watch’, projecting that India could become the world’s second-largest economy in terms of Purchasing Power Parity (PPP) by 2038, with an estimated Gross Domestic Product (GDP) of USD 34.2 trillion(tn).

• This projection is based on International Monetary Fund (IMF) growth forecasts for 2028–2030. By 2030, India’s GDP is expected to reach USD 20.7 tn in PPP terms, while China is projected to remain the largest economy with a PPP GDP of USD 42.2 tn.

Key Drivers of India’s Projected Economic Growth:

Growth Trajectory: India’s growth is supported by its following strong fundamentals

• Youthful demographics: Median age of 28.8 years in 2025,
• Domestic Demand: The second-highest savings rate, and
• Sustainable fiscal outlook: A government debt-to-GDP ratio projected to decline from 81.3% in 2024 to 75.8% by 2030.

Reforms: Also, India’s reforms such as Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), financial inclusion through UPI (Unified Payment Interface) and production-linked incentives are strengthening competitiveness across industries.

Resilience: Apart from the above public investment in infrastructure and adoption of emerging technologies like AI (Artificial Intelligence), semiconductors, and renewable energy are setting the stage for long-term resilience. 

Global Outlook:

Other countries: The United States of America (USA) remains strong but faces high debt levels exceeding 120% of GDP and slower growth rates.

• Germany and Japan, though advanced, are constrained by high median ages and heavy reliance on global trade.
• If India and the USA maintain their projected growth rates beyond 2030, India is expected to surpass the USA in terms of purchasing power parity (PPP) by 2038.

Growth Projection: The report added that the average predicted growth rates of India and the USA over the period 2028 to 2030 are 6.5% and 2.1% (as per IMF) respectively.

• India is also projected to become the third-largest economy in market exchange rate terms by 2028, overtaking Germany.

Tariff Impact: The report has highlighted that the USA tariffs may affect nearly 0.9% of India’s GDP, their impact on GDP growth can be contained to just 0.1%, supported by export diversification, stronger domestic demand, and advancing trade partnerships

About Purchasing Power Parity (PPP): 

PPP: It measure the total amount of goods and services that a single unit of a country’s currency can buy in another country.

Comparison: The PPP between countries A and B measures the amount of country A’s currency required to purchase a basket of goods and services in country A as compared to the amount of country B’s currency to purchase a similar basket of goods and services in country B.