Prime Minister Manmohan Singh struck a downbeat note on the challenges facing the Indian economy on Thursday, dubbing a five-year plan for average growth of 8 percent "ambitious".
India's GDP growth has languished below 6 percent for three straight quarters, a far cry from the near-double-digit pace of expansion before the 2008 global financial downturn.
Economic growth for the fiscal year ending in March is expected to be 5.7-5.9 percent, India's slowest since 2002/03.
"I must emphasize, that achieving a target of 8 percent growth, following less than 6 percent in the first year, is still an ambitious target," Singh told a conference of state chief ministers to finalise the government's 2012-2017 economic plan.
The downturn prodded Singh, castigated for years of policy inertia, to launch the most daring initiatives of his tenure in September, including raising subsidised diesel prices and opening the retail and other sectors to foreign players.
However, one of Singh's key policy advisers, Montek Singh Ahluwalia warned at the meeting that growth could get stuck at 5.0-5.5 percent if a policy logjam continues. "A high growth scenario will not be realised if we follow a business-as-usual policy," Singh said, echoing his adviser.
"Our first priority must be to reverse this slowdown. We cannot change the global economy but we can do something about the domestic constraints which have contributed to the downturn."
Analysts say the government must take more reform steps quickly, including speeding up the process for approval of investment projects, overhauling the tax system and reducing a swollen fiscal deficit by reining in its subsidy bill.
Singh said that subsidies on energy products should be limited, with a phased adjustment of prices.
"Unfortunately, energy is under-priced in our country. Our coal, petroleum products, and natural gas are priced well below international prices. This also means that electricity is effectively under-priced," he said.
"Immediate adjustment of prices to close the gap is not feasible, I realise this, but some phased price adjustment is necessary."
He added that early implementation of a Goods and Services Tax (GST), a long- delayed plan intended to replace myriad state and central taxes, was critical to raise the tax/GDP ratio.