Paris-based think-tank OECD today scaled down India's growth estimate to 5.3 per cent for 2013 from 5.9 per cent, and cautioned that structural bottlenecks could further constrain investment and growth potential.
The OECD Economic Outlook report said, however, that the "GDP growth is projected to rise gradually over the next two years... Significantly more growth would be forthcoming if structural bottlenecks were swept away by fundamental structural reforms".
The Organisation for Economic Cooperation and Development (OECD) had projected 5.9 per cent growth in November 2012.
The latest report said that the growth should gradually recover in 2013 as efforts to speed up the approval of large investment projects and the partial deregulation of foreign direct investment take effect.
"Fiscal tightening and the new fiscal consolidation roadmap are welcome and should allow monetary policy to be eased further. On-going efforts to better target household transfers are commendable although further progress is needed," the OECD said.
It further said that with inflation projected to decline, the Reserve Bank of India could ease monetary policy provided the government sticks to its fiscal consolidation plans.
"The large Current Account Deficit may, however, make it difficult to cut interest rates significantly," it said.
However, subsidies could be better targeted and more revenues could be raised in a less distorted way, it added.
Talking about India's neighbour China, OECD forecast that its economy would grow 7.8 per cent this year, down from a previous estimate of 8.5 per cent.
It also noted that "until around 2020, China is set to have the highest growth rate among major countries, but could be then surpassed by India".
