New Delhi: The World Bank today projected Indian economy to grow at 8.7 per cent this year but estimated that the high growth would moderate in 2008 due to tighter financial and fiscal conditions.

The World Bank in a report noted that low real interest rates combined with an improved business climate and rising household savings have enabled higher investment rates in India, helping to sustain stronger growth.

Consequently, India has emerged as the largest economy in the South Asia region with GDP expanding by an estimated 8.7 per cent in 2006, said the report titled Global Economic Prospects: Growth Prospects for South Asia.

However, investment rate is likely to slow down in 2008 due to tighter financial policy, the report said.

"Slower investment growth in response to tighter financial conditions and weaker consumer and government consumption are expected to contribute to a moderation of GDP growth to about 7.2 per cent over the forecast horizon 2008," the report said.

Rising inflation has forced the Reserve Bank to tighten monetary conditions. It recently announced 0.50 per cent hike in Cash Reserve Ratio to suck out Rs 13,500 crore of liquidity to curb inflation, which reached 5.30 per cent during the week ended November 25.

RBI Deputy Governor Rakesh Mohan earlier in the day said any pause on monetary tightening depends on inflation, liquidity and credit growth. Bank credit has been expanding by over 31 per cent for the three consecutive years.

Congress MPs also asked Finance Minister P Chidambaram to take measures to arrest rising prices of essential commodities.