India's economic growth could slow to 5.5% during the current fiscal year, said finance minister P Chidambaram, signalling the possibility that Asia's third-largest economy will expand at its slowest pace in a decade.
He also said that the government will borrow more to fund a fiscal deficit that is now estimated at 5.3% of GDP (gross domestic product) this fiscal year.
"I'm looking forward to this year ending with 5.5-6% growth, barring any unexpected shocks, and next year getting back to 7% growth, and in 2014-15 getting back to 8% growth," he said on Sunday at a G20 meeting.
The last time full-year growth fell below 6% was in 2002-03 when the economy expanded 4%.
A slump in industrial activity combined with the global slowdown have dragged on the country's performance in the current fiscal year.
The finance minister, however, said that India had the wherewithal to again reach its economic potential.
"In 2004-2008 we had 9% plus growth. It's not as though we have not done it before. We have slowed down thanks to the world and some domestic factors, but we are absolutely confident that we will get back to the higher-growth path."
He also said he was concerned about inflation, which hit a 10-month high of 7.8% in September.
"We must learn to live with some inflation, but inflation cannot be at an unacceptable level. Today it is at an unacceptable level."
A combination of monetary policy spending cuts and a tightening of tax collection could see India lower deficit and foster growth, he said.
"I am confident that with determination, hard work and some pain we will be able to contain the fiscal deficit at 5.3%."
He also rejected the possibility that India might suffer a ratings downgrade after Standard & Poor's recently said the country faces a one-in-three chance of a rating downgrade to junk status over the next two years.
"We are taking steps that will contain the fiscal situation."