The Indian economy will continue to grow but acceleration year-on-year will be gradual, says the latest India Development Update of the World Bank.

According to the Update, India was able to take advantage of the sharp decline in global oil and commodity prices to eliminate petrol and diesel subsidies and increase excise taxes. Resources from lower subsidies and higher taxes has been well utilized in lowering deficits and increasing capital expenditure.

Current account deficit narrowed 3.4 percentage point between financial year (FY) 12-13 and FY 14-15 (The financial years refer to fiscal year ending March 31.) and capital expenditure increased by one third in the first six months of calendar 2015 compared to the previous year. During the same period the construction sector expanded by 4 percent. The Update noted that while public investments have helped kick-start the investment cycle, increased participation of the private sector will be required going forward.

The Update, a twice yearly report on the Indian economy and its prospects, expects India's economic growth to be at 7.5 percent in 2015-2016, followed by further acceleration to 7.8 percent in 2016-2017 and 7.9 percent in 2017-2018. However, acceleration in growth is conditional on the growth rate of investment picking up to 8.8 percent during FY2016-FY2018, it adds.

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