India has been asked by the International Monetary Fund to keep policy rates on hold until high inflation was on a downward trend and to take steps to boost economic growth.
The IMF's annual economic health-check of India's economy stressed that the biggest challenge for the authorities lay in bringing growth back to its potential and lower inflation.
Yesterday, the Reserve Bank of India (RBI) announced its first interest rate cut in three years - an unexpected 50 basis points to boost the economy.
Some IMF directors appeared to disagree on the underlying reason for the slowdown in India, as they argued it was difficult to attribute it to economic "structural factors".
According to an IMF forecast, the economy would grow at about 7 per cent in 2012 and 2013, down from the 8.4 per cent levels of the last two years. It added inflation was projected drop over the medium term, but would stay above the Reserve Bank of India's objective.
"The main domestic risk is a further weakening of private investment if government approvals do not accelerate, reform efforts are not reinvigorated, and inflation remains high and volatile," the IMF said in a statement.