New Delhi: The Indian economy is likely to expand by 8.1 per cent in 2011, the fastest growth rate in the world after China, UN agency said on Tuesday.

Global economic growth to slow down to 3.1 percent in 2011: UNCTAD

In its global release of Trade and Development Report 2011, the United Nations Conference on Trade and Development (UNCTAD) on Tuesday said the India economy will grow by 8.1 per cent in 2011, against to 8.6 per cent in 2010, despite slowdown in developed nations and many other countries.

According to UNCTAD, only China will surpass India. The East Asian giant is likely to register a growth of 9.4 per cent in 2011 compared to 10.3 per cent in 2010.

"In South Asia, India continues to pursue rapid economic growth (close to 8 per cent), based mainly on strong domestic consumption and investment, but also on the positive
contribution of net exports," report said.

UNCTAD's projection for India in 2011 is a tad lower than International Monetary Fund's forecast of 8.2 per cent growth. The government expects the Indian economy to grow by around 8.5 per cent in 2011-12, while the RBI has projected the GDP growth of 8 per cent this fiscal.

The World Bank had in June said India's economy would expand by 8 per cent in 2011-12, while the Asian Development Bank projected a growth of 8.2 per cent during the current
financial year.

UNCTAD said the global economic growth in 2011 will slow down to 3.1 per, compared to almost 4 per cent last year and added that developing economies could be affected by
recession in developed nations.

While developing economies are expected to regain the pre-crisis growth rate of 6 per cent this year, growth in developed economies is expected to be only between 1.5-2 per cent, the report said.

Regarding South Asia, UNCTAD said the region was likely to be among the best performers, with a growth of 7 per cent in 2011.

The report said that growth in the US is likely to remain low on account of low domestic demand, stagnating wages and employment, and low interest rates. The European debt crisis along with spreading fiscal austerity, is also expected to act as a drag on the global growth.

As per the UNCTAD's forecast, Japan's economy will shrink by 0.4 per cent in 2011, against a growth of 4 per cent last year. The US economic growth is also expected to slow to 2.3
per cent this year, down from 2.9 per cent in 2010.

The 27-nations' European Union is, however, expected to grow by 1.9 per cent in 2011 compared to 1.8 per cent in 2010.

Among other BRICS nations, Brazil's annual growth is likely to fall to 4 per cent this year from 7.5 per cent last year, while Russia's economy is projected to expand by 4.4 per
cent against 4 per cent last year.

According to UNCTAD, South Africa's economic growth in 2011 is likely to be 4 per cent in 2011 compared to 2.8 per cent in 2010. The report said India growth story is mainly on account of domestic demand.

"A decomposition of growth into domestic demand and net exports shows that growth in Brazil, China, India and the Russian Federation has been largely driven by an increase in
domestic demand. This suggests that these developing and transition economies are honouring their commitment to help reduce global imbalances," UNCTAD said.

The report, however, raised concerns about asset price inflation and widening current account deficit in emerging economies, including India.

"...serious concerns arise from asset price inflation, strong credit growth and widening of current account deficit observed in some developing countries (e.g. Brazil, India, South Africa and Turkey, among the G-20 members)," it said.

UNCTAD said that India has maintained its current account balance at close to equilibrium over the past two decades.

"The large increase in the investment rate was the counterpart of higher domestic dis-savings (spendings). Hence, India's external imbalances were not caused by domestic savings and as they were rather small, they did not have major global repercussions," the report said.

(Agencies)