World Bank chief economist Kaushik Basu said that the next 18 months will be difficult for India and the global economy, but the gloom surrounding India's economy had been "overplayed" and the country was not in danger of a full-blown crisis.
"Growth may not have bottomed out. We have further to go (down), but the situation is not as bad as is being captured by the mood and captured in the headlines," AFP reported him as saying.
"India is nowhere near the 1991 crisis. The gloom is being overplayed," he added.
His comments came as India's rupee hit a new low of 63.22 to the dollar and shares slipped another 2.11% on Monday on growing fears about the economy and the government's ability to deal with the situation.
On Wednesday, in the latest in a series of measures to prop up the rupee, the Reserve Bank of India tightened controls on the amount of money Indian firms and individuals can send abroad.
The move has been criticised as a disturbing throwback to the days before India unleashed its economic liberalisation drive in the early 1990s, when Indians' access to foreign exchange was strictly limited.
Basu told CNBC-TV18 that the government should energise the manufacturing sector and cut down administrative costs for exports. He said import controls might not be the right response.
Basu said a barrier to increasing exports was the high administrative costs.
"We're doing a little better on exports. But India's biggest stumbling block on the exports is administrative costs. Make those easier and our manufacturing sector will take off. This situation should be used to look into the governance of the manufacturing sector and there are big gains waiting around the corner for India," he told the television channel.
The partially convertible rupee, now Asia's worst-performing major currency this year, fell to 62.70 to the dollar, past its previous low of 62.03 on August 16, on concerns about the slowing economy.
Indian shares, which fell nearly 4% on Friday, plunged another 2.11% or 392.86 points to 18,205.32 points in afternoon trade.
Nervousness rose over the currency as foreign investors pulled out cash.
Yields on benchmark 10-year government bonds jumped to over 9% - their highest since November 2011 - with a higher rate indicating a lack of willingness to invest in the paper.
Dealers said they feared the rupee could weaken further on concerns that a series of RBI measures over the past three months would not help it.
At Monday's new low, the rupee has fallen over 14% against the dollar this year, outstripping the yen in its tumble.
Investors awaited fresh measures from the Reserve Bank of India (RBI) and the government to aid the rupee on Monday, but there was no intervention by early afternoon.
In the past few weeks policymakers have raised short-term interest rates, announced plans to let state firms raise foreign funds abroad, and curbed gold imports in a bid to narrow the deficit and stabilise the rupee.
Emerging-market currencies have been hit by the prospect that the United States will roll back massive stimulus measures. These have been responsible for huge inflows of foreign investment into developing countries.
India relies on foreign capital to fund its current account deficit.
Since June 1, overseas funds have pulled out $11.58 billion from India's stock and debt markets.
Sonam Udasi of IDBI Capital Markets said: "For all investors, growth remains the most critical issue. Until that gets back on track, the nervousness will remain."
India's growth slackened sharply to a decade-low of 5% in the year to March amid a sharp slowdown in industrial activity.
The Congress-led government has been desperate to revive the economy, fearing a voter backlash in elections due by next year.
(With Reuters and AFP)