BNP Paribas sharply cut India's GDP forecast to 3.7 per cent for fiscal 2014 from 5.2 per cent previously. The new forecast, if met, would mark India's lowest growth since fiscal 1992.
RBI's cash draining measures have increased risks to economic growth at a time when the economy was already slowing sharply over the summer, BNP says.
Recent data has been little short of "disastrous", BNP adds, noting falls in industrial output and PMI indicators.
However, the economy could recover to 5.3 per cent by fiscal 2015, BNP argues, as the weaker rupee should allow a recovery in industrial production and export growth while RBI should be able to reverse quantitative easing and eventually resume monetary easing.