Mumbai: The Indian economy, which is expected to grow at a high growth rate of 8.7 per cent this year, is likely to have a moderate 7.2 per cent growth in 2008 due to tighter financial and fiscal conditions, the World Bank said.

In its report titled `Global Economic Prospects: Growth Prospects for South Asia', the World Bank 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, it said.

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

"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.

The Reserve Bank tightened its monetary policy to curb inflationary trends in the economy. The RBI recently announced 0.50 per cent hike in banks' cash reserve ratio that would curb liquidity by Rs13,500 crore.