India is on course to become the world’s second-largest economy in purchasing power parity (PPP) terms by 2038, according to a report released by global consultancy EY on August 27. Citing International Monetary Fund (IMF) data, the report noted that India’s economy is projected to reach $20.7 trillion in PPP terms by 2030, overtaking the United States, Germany, and Japan, while still trailing China, which is expected to remain at the top with an estimated $42.2 trillion economy in PPP terms.
The report underlined that India’s rise is powered by its favourable demographics, a youthful population, and its robust savings and investment rates, coupled with a sustainable fiscal path that distinguishes it from other major economies struggling with ageing populations and high debt. With a median age of 28.8 years in 2025, India enjoys one of the youngest workforces globally, giving it a natural advantage in productivity and consumption-led growth.
China, though projected to remain the largest economy in PPP terms through 2030, faces severe headwinds from a rapidly ageing population and mounting debt liabilities. The United States, while resilient, is constrained by debt levels exceeding 120 percent of GDP and slower growth compared to emerging markets. Advanced economies like Germany and Japan, the report noted, continue to grapple with demographic decline and over-dependence on global trade.
In contrast, India’s economic base appears more balanced and resilient in the long run.
Highlighting the government’s fiscal discipline, EY pointed out that India’s debt-to-GDP ratio is expected to decline from 81.3 percent in 2024 to 75.8 percent by 2030. This trajectory reflects prudent fiscal management by the Modi government, with emphasis on targeted welfare spending, capital expenditure on infrastructure, and structural reforms aimed at boosting long-term productivity.
“India’s young and skilled workforce, robust saving and investment rates, and relatively sustainable debt profile will help sustain high growth even in a volatile global environment,” said DK Srivastava, Chief Policy Advisor at EY India, while presenting the report. He stressed that India’s growth story is not merely cyclical but structural, built upon reforms and demographic momentum.
The consultancy also observed that India’s structural reforms, combined with investments in critical technologies such as artificial intelligence, semiconductors, and clean energy, will strengthen its trajectory.
EY estimates that by 2028, India will surpass Germany to become the world’s third-largest economy in market exchange rate terms, a milestone that shows its global economic clout. The report linked India’s trajectory to its long-term national vision of Viksit Bharat 2047, the government’s ambitious plan to make India a fully developed nation by its centenary of independence.
Alongside EY’s bullish outlook, the Reserve Bank of India (RBI) has also released a report recently, praising the country’s Flexible Inflation Targeting (FIT) framework, calling it one of the key institutional mechanisms that have ensured macroeconomic stability amid turbulent global conditions. Introduced in 2016 with an inflation target of around 4 percent, the FIT framework has, according to the RBI, “broadly delivered on its objectives.”
Between its inception and the end of 2019, India enjoyed a period of low and stable inflation, averaging close to 4 percent, the central bank observed. While later years posed fresh challenges, most notably during the COVID-19 pandemic and the Russia-Ukraine conflict, which triggered supply shocks in global food and fuel markets, India managed to contain inflationary pressures better than many comparable economies.
The report emphasised that India’s inflation-targeting experience is unique because over half of the consumption basket is composed of food and energy items, which are highly vulnerable to supply-side shocks. In this context, maintaining stability has been far more challenging than in advanced economies, yet India has managed to navigate these difficulties effectively.
The RBI credited this achievement to a combination of monetary policy measures and government supply-side interventions. While the central bank tightened monetary policy to prevent second-round inflationary effects, the government ensured smooth availability of essential goods through targeted actions, thereby reducing pressure on household budgets.
The RBI underlined that the coordination between the government and the central bank has been crucial to the success of the FIT framework. This synergy has enhanced the credibility of India’s macroeconomic management, sending a positive signal to global investors and markets. The central bank further observed that the framework’s credibility and built-in flexibility allowed India to adapt policy responses during crises, ensuring that growth momentum was not derailed while safeguarding price stability. It suggested that India’s FIT framework could serve as a template for other developing countries facing similar vulnerabilities to supply shocks in food and energy.
The dual reports, EY’s projection of India’s ascent in the global economy and the RBI’s endorsement of inflation targeting, paint a picture of a nation on the rise, resilient in the face of global uncertainty, and guided by policies that combine ambition with pragmatism. Together, they showcase how India is balancing high growth aspirations with macroeconomic stability, ensuring that its progress is not short-lived but firmly grounded in structural strengths.
The convergence of these findings is significant. On the one hand, EY’s projections highlight the long-term opportunities that arise from India’s demographics and reforms. On the other, the RBI’s assessment demonstrates that India’s macroeconomic institutions are capable of withstanding external shocks and maintaining stability in times of crisis. This combination of growth and resilience is what sets India apart in the global economic landscape.
The Modi government has repeatedly emphasised that the coming decades represent India’s Amrit Kaal, a period of opportunity during which Bharat must transition into a developed nation. Reports such as those by EY and the RBI reinforce this narrative, suggesting that India is well-positioned to achieve its goals.
By 2038, with its demographic dividend still intact, its fiscal metrics improving, and its inflation management framework tested and proven, India is expected to stand as the world’s second-largest economy in PPP terms.
As the global economic order undergoes realignments, India’s trajectory is being closely watched. With its mix of youthful energy, strong reforms, digital transformation, and macroeconomic prudence, India is not only reshaping its own destiny but also redefining the role of emerging economies in the 21st century.
