Even as United States and the Eurozone battle double-dip recession, Asian giants India and China will help stabilise the world economy, says a recently released UN report. The report, despite the slow growth of 2011, predicts a 7.7 percent growth for the Indian economy in 2012.

“India’s economy is expected to expand between 7.7 and 7.9 percent in 2012-13, down from 9 percent in 2010,” said the report titled ‘World Economic Situation and Prospects 2012’ which was released on Tuesday.

The report hailed India as China as the two economies that would keep the motor of the world economy running.

“India will weather this storm with relatively little scars,” said Nagesh Kumar, director of UNESCAP, who released the report in New Delhi.

However, it would not be an easy roll for the country, warns the report. Inflation, high food prices and containing fiscal deficit are few challenges for the Indian economy. Exposure to and ties with other economies around the world which are reeling under crises could also have a bearing on the country. “We need to watch the situation very-very carefully, a complacent India will further fall in growth,” said Kumar.

The UNESCAP director said that any future slowdown in India’s growth might retard the expansion of social security programmes of the government like rural job guarantee scheme.

However, the report projected moderation in inflation in the current year. In 2011, the inflation was in double-digits or hovered near. “As inflation is going down, the Reserve Bank of India (RBI) should now unwind the tightening of monetary policy, which affected industrial growth,” Kumar told reporters. From 2010 to October, 2011, the RBI hiked the lending rate 13 times. “We can look forward to better times now,” Kumar added.

The report also bore good news for employment. “There is a mixed picture of South Asia’s labour market, with only India and Sri Lanka enjoying gains in employment rates,” it noted.

The UN body also believes that 2012 will be a make-or-break year in terms of proceeding with slow economic recovery or falling back into recession. It suggested that the developed countries should not embark prematurely on fiscal austerity policies given the fragile state of economic recovery.

Additional stimulus measures across countries and forceful coordination will help in recovery, the report suggested.

Read the full report here.