Morgan Stanley cut India's economic growth forecast to 5.1 per cent on Monday, the lowest among most private forecasters for the 2012/13 fiscal year, citing a combination of weak external demand, low private investment and poor government finances.
The US investment house had previously projected Asia's third largest economy to grow 5.8 per cent in the year ending March. It also reduced its estimate of GDP growth for 2013/14 to 6.1 per cent from 6.6 per cent.
Economists of Citi, CLSA, CRISIL have also scaled back India's GDP forecast last month.
Economic growth languished near its slowest in three years in the quarter that ended in June but was slightly better than expected at 5.5 per cent, provisional data released on Friday showed.
High fiscal deficit, strong wage growth in rural areas and a decline in private investment is leading to "stagflation-type environment", Morgan Stanley said in a report.
"In the event of continued inaction from the government, we see very high risk of a potential deeper macro stress scenario," Morgan Stanley said, warning that policy sluggishness could push growth further down to 4.3 per cent in the current fiscal year.
In July, RBI revised GDP growth projection to 6.5 per cent for 2012/13 from 7.3 per cent estimated in April.
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