The International Monetary Fund (IMF) strongly stated on Wednesday that India will be the fastest growing major economy for the year 2018, with a growth rate of 7.4 percent that could rise to 7.8 percent in 2019 when medium-term prospects remaining positive.

In its 'Asia and Pacific Regional Economic Outlook' report, IMF said that the country was recovering from the effects of demonetisation and the introduction of the new tax regime: GST (Goods and Services Tax) and "the recovery is expected to be underpinned by a rebound from transitory shocks as well as robust private consumption."

For the medium-term consumer price index inflation, the report said that it "is forecast to remain within but closer to the upper bound of the Reserve Bank of India's inflation-targeting banda of four percent with a plus or minus two percent change."

It, however, added a cautionary note: "In India, given increased inflation pressure, monetary policy should maintain a tightening bias."

The consumer price which was up by 3.6 percent in 2017, is projected to be 5 percent in 2018 and 2019.

"The current account deficit in the fiscal year 2017-18 is expected to widen somewhat but should remain modest, financed by robust foreign direct investment inflows," the report said.

Asia is the fastest growing region in the world

Bangladesh is projected to be the fastest-growing economy in South Asia, after India, with growth rates of 7 percent for 2018 and 2019. Meanwhile, Sri Lanka's growth is projected at 4 percent in 2018 and 4.5 in 2019, and Nepal at 5 percent in 2018 and 4 percent in the next year.

Pakistan was not covered in the Asia report as it is grouped with the Middle East.

The IMF report also said that Asia continues to be both the fastest-growing region in the world and the main engine of the world's economy.

It contributes more than 60 percent of global growth and three-quarters of this comes from India and China, which is expected to grow 6.6 percent in 2018 and 6.4 percent in 2019, the report said.

IMF further said that US President Donald Trump's fiscal stimulus is expected to support Asia's exports and investment.

The growth rate of the Asian region was expected to be 5.6 percent for 2018 and 2019.

Downside risks

The medium term report also pointed out that "downside risks dominate" for the region includes a tightening of global financial conditions, a shift toward protectionist policies, and an increase in geopolitical tensions.

The IMF has urged the countries in the region to follow conservative policies "aimed at building buffers and increasing resilience" and move forward with structural reforms.

Digitalisation

"While mobile payments are expanding sharply in such economies as Bangladesh, India, and the Philippines, on average Asia is lagging sub-Saharan Africa," the IMF said. It also added that the region should ensure that it reaps the full benefits of increasing digitalisation in the global economy.