Mumbai: Global credit rating agency Moody's says that the global slowdown would have only a modest impact on the Indian economy and the country's GDP would decelerate to 7.8 per cent this year , boosted by the strong government spending and investment activity.

"...However, thanks to strong government spending and investment activity, the global slowdown will have only modest effect. India's GDP growth is expected to slow to around 7.8 per cent in 2008, and rebound to 8 per cent the following year as the global economy rebuilds momentum," the report said.

Moody's latest report, India outlook: A challenging time ahead , said that slowing exports and a tight monetary policy were the key downside risks to economic growth this year. However, it said that the government's emphasis on improving infrastructure and reducing poverty would witness strong demand for workers that would lead household incomes to grow at a rapid pace this year.

The report said that amid rapid wage growth, household demand would be solid adding pointing out that domestic demand was a key driver for GDP growth in the country.

However, it noted that risisng inflation coupled with high borrowing costs would weigh on household budgets and dampen consumer spending.

The report also noted that public expenditure would receive a major boost ahead of the next General Election scheduled for May 2009.