IMF planning to significantly downgrade growth estimates for the Indian economy in the World Economic Outlook report. (Photo: Reuters)

At a time when India's economy is suffering from an acute slowdown, the International Monetary Fund (IMF) said the current downturn can only be reversed through "urgent" policy actions.

IMF in its annual review said declining consumption and investment accompanied by falling tax revenue have arrested India's GDP growth, which was one of the fastest in the world just a year ago.

IMF Asia and Pacific Department's Ranil Salgado told news agency AFP that India is now in the midst of a significant slowdown and only quick policy actions can reverse the slowdown.

"Addressing the current downturn and returning India to a high growth path requires urgent policy actions," Salgado said.

The government, however, has limited space to boost spending for supporting growth given the current debt situation and interest payments, warned IMF.

IMF chief economist Gita Gopinath said last week that India's slowdown had "surprised to the downside" and it is planning to significantly downgrade growth estimates for the Indian economy in the World Economic Outlook report, which it will release next month.

The international fund earlier slashed its India 2019 growth forecast by nearly a full point to 6.1 per cent; the outlook for 2020 was also lowered to 7 per cent.

Salgado also said that the Reserve Bank of India (RBI) has space to cut policy rates further, especially if the period of slowdown extends further.

But the RBI has already cut rates five times this year and brought it to a nine-year low. The central bank did not cut rates in its December review, citing a potential increase in inflation.

While it came as a surprise to many economists, RBI Governor Shaktikanta Das said the move was in line with its primary goal of inflation targeting. He, however, said RBI will continue to maintain an accommodative stance, allowing the central bank to cut rates in future.

Though the government has taken a lot of measures to reverse demand contraction and slow economic growth, they are not likely to take effect anytime soon, according to PM-EAC Chairman Bibek Debroy. Like Debroy, many other economists believe that arresting the slowdown will require more time than anticipated before.

Meanwhile, the central bank has slashed India's annual growth forecast to 5 per cent from 6.1 per cent citing a sharp contraction in demand and manufacturing activities.

The central bank slashed its annual growth forecast to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contracts.

On a quarterly basis, the country's growth has been the slowest in more than six years in the July-September quarter at 4.5 per cent.

As noted economist and former RBI governor Raghuram Rajan put it, the government has to decentralise economic decision making and also transform its reform agenda for pulling the economy out of a tight spot.