India is projected to ascend to the position of the world’s second-largest economy in purchasing power parity (PPP) terms by 2038, according to a report from Ernst & Young (EY). This significant shift is attributed to an array of factors, including favorable demographics, a robust savings culture, and a sustainable fiscal path. The report leverages data from the International Monetary Fund (IMF), which highlights a transformative economic landscape for India in the coming decades.
India’s Economic Projection in PPP Terms
According to the EY report, India’s economy is forecasted to reach approximately $20.7 trillion in PPP terms by 2030, placing it ahead of major economies like the United States, Germany, and Japan, yet still trailing behind China. The projected economic size for China in PPP terms is estimated at $42.2 trillion by 2030. Modelled against the backdrop of an ageing population and escalating debt, China’s position, while formidable, may face challenges ahead.
Current Economic Challenges in Major Economies
The United States, despite its resilience, is grappling with a national debt exceeding 120% of its GDP and is exhibiting slowed growth. Similarly, Germany and Japan, while robust in their advanced economic systems, are coming under pressure due to demographic shifts and a reliance on global trade. These factors create a complex environment for economic growth in these mature economies.
The Role of India’s Demographics
One of the pivotal advantages that India holds is its youthful population. The median age in India is projected to be around 28.8 years in 2025, contributing significantly to its labor force. In contrast, many developed nations face the burden of an ageing workforce, which can lead to slower economic growth and increased public spending on healthcare and pensions. India’s demographic dividend, coupled with a strong savings rate and a commitment to investment, sets the country on a robust growth trajectory.
Fiscal Stability and Government Debt
The EY report underscores the importance of India’s fiscal management. Government debt as a percentage of GDP is projected to decline from 81.3% in 2024 to 75.8% by 2030. This downward trend in debt levels is critical for sustaining economic growth and instilling confidence among investors. A manageable debt profile provides more space for government expenditure on critical infrastructure and social welfare programs, thereby boosting economic prospects.
Factors Supporting Growth
The report attributes India’s potential growth to several key factors:
Young and Skilled Workforce: India’s labor market benefits from a vast pool of young, skilled workers who are adaptable and increasingly educated.
Robust Savings and Investment Rates: High domestic savings provide the necessary capital for investment in infrastructure and business sectors, essential for sustained economic growth.
Structural Reforms: Recently implemented structural reforms, including initiatives like the Goods and Services Tax (GST) and the Make in India program, have laid the groundwork for increased business activity and foreign direct investment.
- Investment in Technology: Ongoing investments in critical technologies, ranging from renewable energy to information technology, are set to enhance productivity and economic output.
The Vision for 2047: Viksit Bharat
India’s long-term vision of becoming a developed nation, termed "Viksit Bharat," aims for realization by 2047, marking a centenary of independence. This ambitious goal is aligned with the country’s economic aspirations and encompasses broader social, environmental, and technological parameters. Achieving this vision demands sustained policy efforts and investment across multiple sectors.
Growth in Market Exchange Rate Terms
By 2028, it is anticipated that India will surpass Germany, becoming the world’s third-largest economy in terms of market exchange rates. This additional layer of economic success signifies the increasing global relevance of India’s economy in both PPP and market terms, further establishing its position as an emerging economic powerhouse.
Addressing Potential Challenges
Despite the optimistic forecasts, a degree of caution is warranted. India faces challenges such as ensuring inclusive growth that translates into improved living standards for all sections of the population. Moreover, infrastructure development must keep pace with growing urbanization and population demands. Addressing income inequality and improving access to education, healthcare, and employment opportunities will also be critical.
Conclusion
India’s journey towards becoming the world’s second-largest economy by 2038 in purchasing power parity terms is a compelling narrative fueled by youth, resilience, and strategic reforms. As the country harnesses its demographic advantages and remains committed to sustainable economic management, it has the potential to redefine its global standing in the economic landscape. The concerted efforts towards fulfilling the vision of Viksit Bharat resonate not just with economic statistics, but with a renewed sense of national identity and purpose.
The shift towards an economy that prioritizes not only growth but also developmental equality, technology, and sustainability will mark India’s evolution in the global arena. In a world increasingly characterized by unpredictability, India’s robust growth trajectory may indeed serve as a beacon of hope and progress. As stakeholders prepare for this transformation, the focus should remain on inclusivity, innovation, and sustainability to ensure that the benefits of growth permeate across society.
