Despite US President Donald Trump imposing a 50% tariff on Indian exports, India is on track to become the world’s second largest economy by 2038. According to the August 2025 report of EY Economy Watch, India’s gross domestic product (GDP) could reach $34.2 trillion on a purchasing power parity (PPP) basis.
India’s economic strength
The EY report states that India is emerging as one of the most dynamic countries among the five largest economies in the world. The major reasons for this are:
- High savings and investment rates
- Young demographics (median age 28.8 years)
- Sustainable financial position
India’s government debt-to-GDP ratio is projected to fall from 81.3% in 2024 to 75.8% by 2030. At the same time, the debt of countries like China and America is continuously increasing.
India in global comparison
- China: Estimated to become a $42.2 trillion economy by 2030, but aging population and increasing debt are its biggest challenges.
- America: Despite being strong, it is facing more than 120% debt and slow growth rate.
- Germany and Japan: Despite being developed economies, they are limited by high average age and dependence on global trade.
In contrast, India has a young population, growing domestic demand and better financial outlook, making it in the strongest position for long-term growth.
EY India statement
EY India Chief Policy Advisor D.K. Srivastava said: “India’s strengths – young and skilled workforce, high savings and investment rates and balanced debt profile – will help maintain rapid growth even in a global unstable environment. If India increases its capacity in emerging technologies, it will be possible to fulfill the dream of ‘developed India’ by 2047.”
Reasons for India’s growth rate
The report states that the key factors driving India’s growth are:
- High savings and investment rates – boosting capital formation.
- Fiscal reforms – towards sustainable development.
- Important reforms – GST, bankruptcy code (IBC), digital transactions (UPI), and production-linked incentives (PLI).
- Investments in infrastructure and technology – AI, semiconductors and renewable energy are making India’s economy future-ready.
Impact of US tariffs
The 50% tariffs imposed by the Trump administration are the biggest blow to India, the highest duty imposed on any Asian country. The main reason for this was said to be India’s purchase of oil from Russia.
EY estimates that these tariffs could impact India’s GDP by about 0.9%. However, if India takes steps to diversify exports, strengthen domestic demand and find new trading partners, the impact on GDP growth will be limited to just 0.1% points.
Despite challenges like tariffs, India’s young population, strong investment climate and reform-driven economy are positioning it to become a global power in the coming years. The EY report makes it clear that if India maintains its momentum, it will succeed in becoming the world’s second largest economy by 2038.
