Indian economy to grow 7.7% this year, says OECD

Says over the next two years India is set to grow faster than China

India is poised to grow 7.7% this year and 8% in 2016 to become the "fastest growing major economy", according to think-tank OECD.

In its interim economic assessment report released today, OECD said that over the next two years India is set to grow faster than China, where growth is slowing towards the official target of around 7%.

However, the grouping cautioned that maintaining rapid growth would be a challenge for India despite the strong current momentum.

The Organisation for Economic Cooperation and Development's (OECD) bullish outlook for India comes close on the heels of IMF chief Christine Lagarde describing the country as a "bright spot" on cloudy global horizon.

"India will grow by 7.7% in 2015 and 8% in 2016... India is now expected to be the fastest-growing major economy in 2015-16, overtaking China," OECD said.

In November last, the grouping had projected Indian economy to expand 6.4% and 6.6% in 2015 and 2016, respectively.

OECD said that part of this relative improvement reflects significant revisions to past GDP data, which raise the base growth rate through 2014.

"The projected acceleration in growth this year is actually smaller than foreseen in the November 2014 Economic Outlook, reflecting sluggish growth of investment and exports.

"With obstacles emerging to the adoption of growth- friendly structural reforms, maintaining rapid growth will pose a difficult challenge, notwithstanding the strong current momentum," the report noted.

China is anticipated to expand 7% this year as well as next year.

"Brazil's economy is expected to shrink by 0.5% in 2015 before returning to a 1.2% growth rate in 2016," the report said.

According to OECD, low oil prices and monetary easing are boosting growth in the world's major economies, but the near-term pace of expansion remains modest, with abnormally low inflation and interest rates pointing to risks of financial instability.

"The widespread easing of monetary policy over the past few months, affecting countries accounting for roughly half of global GDP, has resulted in improvements in global financial conditions. A number of the associated moves in exchange rates have been large, raising the question of overshooting in some cases," it said.

Strong domestic demand is driving growth in the US, which, combined with dollar appreciation, is adding to demand in the rest of the world, OECD said.

"The euro area should benefit from low oil prices, monetary stimulus and euro depreciation, which combine to offer the chance to escape from stagnation," it added.