India's economy is expected to grow by 8.75 per cent during the 2008 fiscal year despite global uncertainties including a slowdown in the US and higher oil prices worldwide, according to the International Monetary Fund (IMF).

The IMF's executive bard indicates the potential growth in the Indian economy is attributable to increased domestic productivity and investment. India's favorable outlook, Board members say, has attracted record capital inflows which help finance investment.

However, these same investments also present challenges to managing capital market integration, such as sustaining rapid and inclusive growth, fostering job creation, and maintaining macroeconomic and financial stability in the context of large capital inflows.

To overcome these challenges, the IMF says more flexible labor regulations are needed to facilitate job growth, while higher and more effective public spending on education is needed to address the skills gap.