Rating agency Fitch has lowered India's growth projection for the current financial year to 6 per cent from 6.5 per cent estimated earlier , citing challenging economic outlook.
India's economic growth has slowed to a three-year low of 5.3 per cent in the April-June quarter of 2012-13.
Fitch said the high fiscal deficit leaves little room for government for fiscal easing and increasing spending.
A breakdown of GDP by expenditure shows that domestic demand is stagnating as fixed investment and private consumption grew just 0.7 per cent YoY and 4 per cent YoY respectively in April-June quarter, Fitch said.
"The projections for real GDP growth (has been trimmed) to 6 per cent for FY 2012-13 from a previous estimate of 6.5 per cent," Fitch said in its Global Economic Outlook report.
Growth had fallen to 6.5 per cent in the 2011-12.
The ratings agency said weak investments are affecting supply capacity and thereby pointing towards weaker growth outlook.
On the recent reformist measures announced by the government, Fitch cautioned that volatile political environment poses risk towards implementation of the initiatives.
The government opened the multi-brand retail chains to foreign direct investment (FDI), besides allowing foreign carriers to pick up stake in Indian aviation companies.
It also hiked diesel prices by over Rs 5 a litre and capped the number of subsidised LPG cylinders to 6 per family a year.
"The authorities have announced a range of reforms including liberalisation of FDI in multi-brand retail which may help to restore confidence and lift investment, although the volatile political environment points to implementation risk," it said.
"Inflation pressures are likely to intensify following the government's long-awaited decision to hike diesel prices by 12 per cent in mid-September," the ratings agency added.
With inputs from PTI