Concerned over falling growth, RBI on Monday asked the government to provide investment stimulus and take aggressive steps, like increasing petroleum prices, to curtail subsidies.
"Corporate sales decelerated along with continued decline in profits and could adversely impact investments ahead. In this situation, crowding-in of private investment demand by public investment spending stimulus while aggressively cutting expenditure on subsidies hold the key to growth revival," the RBI said in Macroeconomic and Monetary Developments report.
Citing that low investments cannot be attributed to high interest rates only, the RBI said in the pre-crisis period investments were high even as interest rates remained at elevated level.
It said sustained fall in investment has impacted India's growth potential and there is a need to improve the investment climate by "moving quickly" to address bottlenecks in infrastructure space and removing constraints on foreign direct investment (FDI).
India's economic growth fell to a nine-year low of 6.5 per cent in 2011-12 after clocking over 8 per cent GDP growth for three consecutive fiscals.
Government has been unable to raise FDI cap in insurance and pension sector to 49 per cent from 26 per cent and also open the multi-brand retail sector to foreign players because of opposition from its coalition partners.