"If inflation is high then you begin at a point where growth is low," Jaitley said at a BJP forum meeting.
"We need to change this situation. And, I believe that unless we find out the reasons which have led us to such a situation, it is difficult to solve it."
The finance minister said that growth of the manufacturing sector needs to be revived for accelerating overall economic activity.
"The manufacturing sector for one year was flat. When manufacturing growth becomes negative, the customs and excise duties come down, revenue of government also comes down, forcing it to borrow more," Jaitley said.
"Unless government gets revenue, it cannot build infrastructure and service the welfare schemes for the poor," he said.
Jaitley further said that the imposition of the retrospective tax created a negative sentiment about the country.
"If your taxation policy is so fragile then there is no authenticity to your economic and tax policies."
Recent data showed India's retail inflation rose to a two-month high, amid slower growth in factory output.
Data released by the statistics and programme implementation showed the annual inflation based on consumer price index rising to 7.96 percent in July from 7.46 percent in the month before, even as the index for industrial production (IIP) showed a lower growth of 3.4 percent in June, against 5 percent in May.
Jaitley further said that there was a need for fiscal discipline so that populist schemes that require subsidy be tamed.
"If we waive off loans, empty the government treasury, and destroy economic discipline, then I feel this would not help the economy or the country."
Jaitley also admitted that he too gets subsidies, however he said: "But I firmly believe that I have no right to avail of those subsidies."
During the last financial year, the government had borrowed Rs.5.63 trillion.