India May Become 2nd-Largest Economy by 2038

Understanding PPP & GDP

• GDP (Nominal): Measured at market exchange rates; useful for global financial flows.
• GDP (PPP): Purchasing Power Parity adjusts for price level differences → reflects real purchasing power, living standards.
• India’s position today (2024-25):
  • Nominal GDP ~ $4.1 trillion (5th largest).
  • PPP GDP ~ $15.4 trillion (3rd largest, after China & US).

Relevance : GS 3(Indian Economy)

EY Report (Aug 2025) – Key Projections

• 2030: India’s GDP at $20.7 trillion (PPP).
• 2038: India at $34.2 trillion (PPP) → 2nd largest economy, overtaking the US.
• US in comparison: Debt >120% of GDP, slower growth (~2.1%).
• China: Still No.1 but faces aging & debt issues.

Growth Drivers for India

1. Demographics
   1. Median age: 28.8 years (2025) vs China (39), US (38).
   2. Large working-age population → “demographic dividend”.
2. Savings & Investment
   1. Among the highest savings rates globally → fuels capital formation.
   2. Infra spending + private investments rising under PLI (Production Linked Incentives).
3. Structural Reforms
   1. GST → unified tax regime.
   2. IBC → improved insolvency resolution.
   3. UPI → digital payments revolution.
   4. PLI schemes → boost manufacturing, exports.
4. Fiscal Position
   1. Govt. debt-to-GDP projected to decline: 81.3% (2024) → 75.8% (2030).
   2. Relatively sustainable compared to US (120%+) or Japan (250%+).
5. Technology & Green Growth
   1. Adoption of AI, renewables, EVs, green hydrogen.
   2. Digital infra (UPI, Aadhaar, ONDC) = global benchmark.

Risks & Challenges

• External shocks:
  • US Tariffs (Aug 2025): 50% tariffs on Indian goods → potential 0.9% GDP impact.
  • With countermeasures, hit reduced to just 0.1% (10 bps).
• Internal hurdles:
  • Job creation lagging vs working-age population.
  • Regional disparities (North-South divide).
  • Skill development gap in AI, advanced manufacturing.
• Global Comparisons:
  • China: Growth slowing (aging, high debt).
  • US: Political polarization, debt >120% GDP.
  • Germany/Japan: Aging population + dependence on trade.
    → India seen as most dynamic among top 5 economies.

Global Implications

• Geo-economics:
  • India as growth engine of Global South.
  • Alternative to overdependence on China for global supply chains.
• Geo-politics:
  • Larger role in G20, BRICS, WTO reform.
  • Strengthens case for UNSC permanent membership.
• Viksit Bharat 2047 Vision:
  • Second-largest economy by 2038 → aligns with India’s plan to become a developed nation by 2047.

Key Takeaways

• India’s trajectory to $34.2 trillion GDP (PPP) by 2038 makes it No.2 globally.
• Drivers: demographics, reforms, savings, infra, digital, green energy.
• Risks: tariffs, global slowdowns, domestic unemployment.
• Strategy Needed:
  • Diversify trade partners.
  • Invest in education & skills.
  • Push domestic demand + manufacturing.
  • Sustainable fiscal & energy policies.