India's economy is slowly gaining momentum and is projected to grow by 7.3 percent in 2016, a United Nations report said on Thursday.

"India's economy is slowly gaining momentum, with an expected GDP growth of 7.3 and 7.5 percent in 2016 and 2017 respectively," said the World Economic Situation and Prospect mid-2016 update released at the UN headquarters in New York.

"Despite some delays in domestic policy reforms and enduring fragilities in the banking system, investment demand is supported by the monetary easing cycle, rising FDI, and government efforts towards infrastructure investments and public-private partnerships," it said.

Growth estimates for India in the mid-year update are in line with that made in the January report, which had said that the country will be the world's fastest growing large economy at 7.3 percent in 2016, improving further to 7.5 percent in the following year.

The report also said that despite the instabilities and general weakness of the global economy, South Asia's economic outlook remains favourable, with most countries benefiting from low oil prices.

The region's GDP growth is projected to rise from 6.1 percent in 2015, to 6.6 this year and 6.8 percent in 2017 on the back of robust private consumption, strengthening investment demand and gradual progress on domestic policy reforms.

Instead, China, which grew at about 6.9 percent in 2015, will continue to witness slowdown in growth, with its GDP projected to grow 6.4 percent in 2016 and 6.5 percent in 2017, according to the report.

"A larger-than-expected slowdown in China would have widespread spill-over effects through trade, financial and commodity markets, while a further deterioration of commodity prices could trigger debt crises in certain commodity-dependent economies," the report said.

