India Set to Become World’s Second-Largest Economy by 2038: EY Report
Robust Growth, Structural Reform, and Demographic Strength Position India for Economic Supremacy Despite Global Trade Pressures
Introduction
India is primed for a historic rise in the global economic hierarchy, with the recent EY Economy Watch projecting the nation will overtake the United States to become the world’s second-largest economy by 2038. This forecast comes amidst daunting external challenges, most notably the steep 50% tariff hike imposed by the United States under former president Donald Trump—a move that raised questions about its impact on India’s economic future. Despite these headwinds, India’s resilient domestic fundamentals and strategic reforms underpin optimism in its growth trajectory.
EY’s Landmark Projection
The EY report (August 2025) projects India’s GDP (PPP) to soar to $34.2 trillion by 2038, making it the world’s second-largest economy after China. The report further suggests that by 2028, India will overtake Germany in market exchange rate terms, reinforcing its position as a key player in the global economy. The drivers cited for this meteoric ascent include:
• High rates of domestic savings and investment
• An increasingly young and skilled workforce
• Ongoing reforms in infrastructure, digital economy, and governance
Navigating Trump Tariffs: Impact and Adaptation
On August 27, 2025, the Trump administration’s doubling of tariffs hit approximately $48 billion of Indian exports, targeting sectors from textiles to IT hardware. While this decision generated concern over potential GDP losses and reduced export competitiveness, the EY report paints a more nuanced picture:
• EY estimates direct tariff exposure at 0.9% of GDP, with effective impact likely cushioned to about 0.1% through policy adaptation and market diversification.
• Indian authorities are accelerating the search for alternate markets and trade agreements to lessen dependency on the US, leveraging India’s expanding global footprint.
• Technology and service sectors continue to display resilience, offsetting some export vulnerability.
Structural Reforms Bolster Growth
India’s rise is attributed to sweeping reforms across critical sectors such as taxation, digital access, and labor laws. The creation of a more investor-friendly business climate has spurred an influx of foreign direct investment (FDI) and homegrown innovation:
• The pace of infrastructure upgrades—ranging from expressways and metro systems to renewable energy projects—has quickened across the country.
• Digital transformation initiatives have made India one of the world’s fastest-growing technology hubs, further propelling GDP growth.
Demographic advantage remains India’s ace: a young and increasingly skilled labor force ensures sustained productivity and demand.
The Road Ahead: Opportunities and Challenges
Despite its promising trajectory, India must continue addressing challenges such as inequality, education quality, and geopolitical risk. As EY cautions, future prosperity will rely on:
• Maintaining reform momentum
• Investing strategically in healthcare, education, and innovation
• Strengthening global trade partnerships, especially with ASEAN, Africa, and Europe
India’s ability to maintain strong domestic consumption and agility in export markets will be key to realizing the EY forecast.
The image added is for representation purposes only
