India on Track to Become the World’s Second-Largest Economy by 2038

India is set to make history in the coming decades, with new projections indicating that the nation will emerge as the world’s second-largest economy by 2038 in purchasing power parity (PPP) terms. According to the latest EY Economy Watch report, India’s GDP could climb to an astonishing USD 34.2 trillion, surpassing the United States and trailing only behind China. This remarkable trajectory underscores the nation’s growing economic clout and highlights its resilience in an uncertain global landscape.

India's mix of a young population, high domestic demand, and good financial health gives it the most promising path for long-term growth. (Photo: GettyImages) | India Today

The Power of Demographics

A key driver of India’s economic rise is its youthful population. With a median age of just 28.8 years, India commands one of the youngest workforces among major economies. This demographic dividend not only fuels productivity but also ensures long-term demand for goods, services, and innovation. Unlike ageing nations such as Japan and Germany, India’s expanding labor pool is expected to sustain growth well into the 2030s, creating a self-reinforcing cycle of investment and consumption.

Domestic Demand as a Growth Engine

India’s growth is further bolstered by its robust domestic economy. Nearly two-thirds of India’s GDP is powered by internal consumption, placing it ahead of most developed economies that are far more reliant on global trade. This domestic strength insulates India from external shocks, ensuring that even in times of global downturns, the internal market continues to drive expansion. This “Mumbai Consensus” model, rooted in domestic-led growth rather than export dependence, is increasingly being recognized as India’s unique economic advantage.

Fiscal Discipline and Financial Stability

Another cornerstone of India’s rise is prudent fiscal management. Government debt-to-GDP, which stood at 81.3 percent in 2024, is projected to decline to 75.8 percent by 2030. Coupled with one of the world’s highest savings rates, India has created the financial buffer necessary to sustain capital formation and investment. These macroeconomic fundamentals have bolstered investor confidence and ensured that the country remains on a sustainable growth path.

Reform and Innovation at the Core

Structural reforms introduced over the last decade have significantly enhanced India’s economic competitiveness. Initiatives such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), digital innovations like UPI, and production-linked incentive (PLI) schemes have modernized the business environment and fueled industrial growth. At the same time, government-led investments in infrastructure, artificial intelligence, semiconductors, and renewable energy are shaping India into a hub for the industries of the future. Together, these reforms and innovations are laying the foundation for long-term global leadership.

Global Comparisons and Strategic Positioning

India’s rise becomes even more pronounced when compared with other leading economies. China, projected to remain the largest economy at USD 42.2 trillion (PPP) by 2030, is weighed down by its ageing population and rising debt. The United States continues to grapple with high public debt exceeding 120 percent of GDP, while Japan and Germany face constraints from shrinking populations and dependence on global trade. In contrast, India’s youthful workforce, domestic demand, and reform-driven economy present a more balanced and resilient model for the future.

Navigating Global Challenges

Despite the optimistic outlook, challenges remain. U.S. trade tariffs are expected to impact nearly 0.9 percent of India’s GDP, but analysts suggest that the actual hit to growth will be limited to 0.1 percentage point if India continues to diversify its exports and strengthen its domestic market. By focusing on resilience and self-reliance, India is well-positioned to absorb such shocks without deviating from its long-term growth trajectory.

A Transformative Future

Currently ranked the world’s fourth-largest economy in nominal terms, with GDP at around USD 4.19 trillion, India is expected to become the third-largest by 2028 in market exchange terms, overtaking Germany. More importantly, by 2038, its rise to the second spot in PPP terms will represent not just a numerical milestone but a transformation in global economic power dynamics.

Conclusion

India’s journey towards becoming the world’s second-largest economy is not merely about numbers; it represents the story of a nation harnessing its demographic dividend, leveraging reforms, and embracing innovation to craft a sustainable future. With structural strengths, fiscal discipline, and an unmatched domestic demand base, India is set to shape the global economy in the 21st century. Yet, the success of this transformation will depend on inclusive growth, addressing social disparities, and ensuring that the benefits of prosperity reach every corner of the country. If these goals are met, India’s ascent will not only redefine its own destiny but also alter the very balance of global economic power.

(Sources: India Today, NDTV, Livemint)