India's economy is likely to expand by 7.2 per cent in 2018 and go up further to 7.4 per cent in the following year on the back of strong private consumption, public investment and the ongoing structural reforms, a United Nations (UN) report said.

Overall, economic outlook for South Asia is seen largely favourable and steady for the short term, notwithstanding significant medium-term challenges, said the 'World Economic Situation and Prospects 2018' report unveiled by United Nations Department of Economic and Social Affairs (UN DESA).

"The economic outlook remains steady and largely favourable in South Asia, driven by robust private consumption and sound macroeconomic policies.

"Monetary policy stances are moderately accommodative while fiscal policies in several economies maintain a strong emphasis on infrastructure investment. The recovery of external demand is also buttressing growth," said the report unveiled today.

On India, the report has projected a positive outlook despite the slowdown early this year and the lingering effects of demonetisation.

"The outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms. Hence, GDP growth is projected to accelerate from 6.7 per cent in 2017 to 7.2 per cent in 2018 and 7.4 per cent in 2019," the UN DESA report said.

But the anaemic performance of private investment remains a key macroeconomic concern for India with gross fixed capital formation, as a share of GDP, falling to 30 per cent in 2017, from 40 per cent in 2010.

The credit is subdued and there is low capacity utilisation in some industrial sectors while the banking and corporate sectors feel the balancesheet problems.

"In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth," the report said.

Credit growth is subdued despite monetary easing, but bank recapitalisation and the Indian Bankruptcy Code (IBC) have the potential to revive credit growth, said N R Bhanumurthy, Professor, National Institute of Public Finance and Policy.

Strengthening its fiscal accounts, especially through widening of the tax base, and addressing infrastructure deficit are two major concerns for the Indian government, he added.

Achieving the Fiscal Responsibility and Budget Management (FRBM) target could become a major challenge in the context of Goods and Services Tax (GST) as well as recent stimulus measures, he added.

"Achieving 3.2 per cent fiscal deficit may not be an issue, but quality of expenditure is more important than fiscal deficit target," Bhanumurthy told reporters while presenting the report here.

For South Asia, the UN report expects regional gross domestic product (GDP) growth to be strengthening to 6.5 per cent in 2018 and further to 7 per cent in 2019, following an estimated economic expansion of 6.3 per cent this calender.

The positive economic outlook is widespread across the region, with most of the economies projected to see stronger growth rates in 2018 compared to 2017, it added.

Inflation in the region is seen to be stable and at relatively low levels, stated the report.

"The favourable prospects for inflation, coupled with mostly sustainable current account deficits, will facilitate macroeconomic policy management across the region in the near term," the report added.

Overall, this positive outlook is a continuation of the improvement in economic conditions in South Asia over past years and will contribute to gradual progress in labour market indicators and a reduction in poverty rates, it said further.