India is pegged to be the fastest growing economy in the world in 2017-18 and will be a key driver for global growth, according to the International Monetary Fund (IMF).

Retaining its growth forecast of 7.2 per cent for India for the fiscal, the IMF in its World Economic Outlook, also estimated that India would grow at 7.7 per cent in 2018-19 and said that 8 per cent growth in the medium term is within reach. It pegged India’s growth rate at 6.8 per cent in 2016-17.

“Medium-term growth prospects are favourable, with growth forecast to rise to about 8 per cent over the medium term due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies,” said the report released on Tuesday.

Concerned about the impact of demonetisation on the economy, the IMF had in January trimmed India’s GDP forecast by 0.4 percentage points from its earlier forecast of 7.6 per cent growth this fiscal.

Moreover, praising India’s efforts at structural reforms that would drive domestic growth, the IMF has listed it as one of the factors that could help boost the global economy.

It has pegged world output at 3.5 per cent in 2017, rising marginally to 3.6 per cent in 2018. By 2022, it estimates global growth to rise to 3.8 per cent, led by developments in the emerging market and developing economies, where growth is projected to increase to five per cent by the end of the forecast period

“This forecast assumes continued strengthening of growth in commodity exporters; an acceleration of activity in India resulting from the implementation of important structural reforms; and a successful rebalancing of China’s economy to lower, but still high, trend growth rates,” said the report.

However, the IMF has also listed further reforms that India must undertake, including replacing the demonetised currency and reducing labour and product market rigidities to ease firm entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labor.

Policy actions should also address disinflation in the agriculture sector reforms and improved infrastructure, it said. Further, steps should also be taken to address non-performing loans and recapitalise public sector banks, reduce subsidies and timely implementation of the goods and services tax.