India on Track to Become World’s Second-Largest Economy by 2038 Despite U.S. Tariffs: EY Report

India is expected to emerge as the world’s second-largest economy in purchasing power parity (PPP) terms by 2038, despite fresh tariff pressures from the United States, according to EY’s Economy Watch released in August 2025.

The report projects India’s GDP to reach $20.7 trillion (PPP) by 2030, with further growth taking it to $34.2 trillion by 2038, surpassing most major economies except China. The forecast comes just a day after the U.S. imposed steep 50% tariffs on Indian exports, marking the highest duty levied on any Asian country so far.

India’s Strengths Amid Global Challenges

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EY highlighted that India’s growth momentum rests on strong fundamentals such as a youthful workforce, high savings and investment rates, and a sustainable fiscal position. With a median age of just 28.8 years in 2025, India enjoys a demographic advantage that contrasts sharply with the ageing populations of China, Germany, and Japan.

The report further noted that India’s government debt-to-GDP ratio is expected to decline from 81.3% in 2024 to 75.8% by 2030, while many advanced economies are grappling with rising debt levels. These conditions, coupled with ongoing reforms—such as the Goods and Services Tax (GST), Insolvency and Bankruptcy Code (IBC), UPI-driven financial inclusion, and production-linked incentives—are strengthening India’s competitiveness.

EY’s Chief Policy Advisor, DK Srivastava, remarked that India’s “young and skilled workforce, robust saving and investment rates, and relatively sustainable debt profile” will help sustain high growth even amid global volatility. He added that with resilience-building measures and advances in technology, India remains well-placed to achieve its Viksit Bharat vision by 2047.

Tariffs Pose Risks but Growth Outlook Holds

The report acknowledged that the latest U.S. tariffs—imposed to penalise India’s continued imports of Russian oil—could shave off nearly 0.9% of GDP. However, EY estimated the direct impact on GDP growth to be limited to just 0.1 percentage points, provided India actively pursues counter-strategies.

These include diversifying export markets, bolstering domestic consumption, and strengthening global trade partnerships. India’s push in critical sectors such as infrastructure, renewable energy, semiconductors, and artificial intelligence is also expected to support long-term resilience against external shocks.

A Comparative Global Position

While China is projected to remain the largest economy in PPP terms with a GDP of $42.2 trillion by 2030, it faces risks from an ageing population and rising debt. The United States, though resilient, is constrained by debt levels exceeding 120% of GDP and relatively slower growth. Meanwhile, Germany and Japan continue to rely heavily on global trade while facing demographic pressures.

Against this backdrop, India’s demographic dividend and sustainable fiscal path provide it with the most favourable long-term growth trajectory among major economies.

Conclusion

According to EY's study, India is well-positioned for long-term growth due to its structural strengths and reform-driven growth model, even though the U.S. tariffs are a short-term obstacle. India is in a strong position to surpass its international counterparts and establish itself as the second-largest economy in the world by 2038 due to growing domestic demand, governmental backing, and a youthful labour population.