"The Indian economy needs to brace up for a difficult year from a macroeconomic perspective. With weak supply response, inflation remains an important macroeconomic challenge," RBI said in its Annual Report for 2010-11.
It said that growth is likely to remain at 8 per cent in 2011-12, lower than 8.5 per cent clocked in the previous fiscal. RBI said if the global financial condition deteriorates, it could further lower the growth projections in the current fiscal.
"Growth prospects for the year 2011-12 seem to be relatively subdued compared to the previous year due to a number of unfavourable developments. Global uncertainties have increased," the report said.
It said that persistent inflationary pressure, rising input cost, rise in cost of capital due to monetary tightening and slow project execution are some of the factors which could put pressure on growth.
The overall inflation in June stood at 9.22 per cent.
"Inflation is likely to remain high and moderate only towards latter part of the year to about 7 per cent by March 2012," RBI said.
To sustain high growth in medium term, it was important to shore up investment, RBI said, but added that the scope for stimulus was limited. "Fiscal and monetary space is limited for any counter cyclical stimulus if global conditions deteriorate."