India is on track to surpass the United States in terms of purchasing power parity (PPP) by 2038, according to EY’s latest Economy Watch report. Based on IMF forecasts, India’s GDP is projected to reach $34.2 trillion (PPP terms), making it the world’s second-largest economy, only behind China.
Strong Growth Momentum
Between 2028 and 2030, India is expected to grow at an average of 6.5%, compared to the US at just 2.1%, the report highlights. This follows robust projections for 2030, when India’s economy could hit $20.7 trillion, outpacing not only the US but also Germany and Japan. The report calls India “the most dynamic economy in the world,” growing 2.3 to 3.6 times faster than the US in the coming years.
Milestones in Market Exchange Terms
While PPP is the long-term focus, India is also climbing the ranks in market exchange terms. EY notes that India will:
- Surpass Japan by FY26, becoming the fourth-largest economy.
- Overtake Germany by FY29, rising to the third-largest economy globally.
- By 2038, move ahead of the US in PPP, positioning itself as the world’s second-largest economy.
Fiscal Discipline and Investment Strengths
India’s fiscal health and investment-driven growth play a critical role in this trajectory. The report points out that:
- India’s government debt-to-GDP ratio is projected to fall from 81.3% in 2024 to 75.8% in 2030, unlike the US, Germany, and China, where the ratio is set to rise.
- The country maintains a high gross capital formation (above 30%), supporting infrastructure and industry-led growth.
- India’s final consumption expenditure-to-GDP ratio of over 71% shows the strong domestic demand driving the economy.
Trump’s Tariffs: A Minor Hiccup
Interestingly, the report was released the same day that US President Donald Trump’s 50% tariffs on Indian goods came into effect. EY estimates that these tariffs may shave off no more than 10 basis points (0.1%) of India’s GDP. The US, however, could face greater pressure due to its high debt levels and upcoming refinancing needs.
Conclusion
India’s resilience, driven by robust consumption, investment, and fiscal prudence, is setting the stage for it to emerge as the world’s second-largest economy by 2038. While tariffs may pose temporary hurdles, the long-term trajectory remains firmly upward.
