The bank on Wednesday projected a dip in growth to 6.1% in 2006/07 because of an expected decline in industrial production, but foresaw a rebound to 7% in fiscal 2007/08 because of a revival in industry and services, the mainstays of the Indian economy.
"Expansion in investment - especially in infrastructure - holds the key to sustaining high growth over the long run," the bank said.
It also called on the government to pare back the fiscal deficit from the expected 4.5% this fiscal year, manage its swelling foreign exchange reserves and strengthen India's competitive advantage in the textile sector.
The inflation rate was likely to decline in the coming financial year but remained vulnerable to a sharp rise in global oil prices and to a weak monsoon, the bank said.
Economic growth in the past financial year fell to 6.5%, the bank said, citing lower than average monsoon rains that hit the agricultural output, which contributes to nearly a fifth of the GDP.
The Indian government says growth in 2004/05 will be 6.9%.
The bank's projections for the next few years are in line with those made by Prime Minister Manmohan Singh, who said on Tuesday that the economy is unlikely to hit the target of 8.1% for the five-year period ending 2007, and in fact is unlikely to cross 7%.
"There are several positive features which are noted, but there are also signs that the economy is not on track to achieve many of the important targets... Corrective policies are therefore urgently needed"
Indian prime minister
"There are several positive features which are noted, but there are also signs that the economy is not on track to achieve many of the important targets... Corrective policies are therefore urgently needed," Singh said.
The prime minister said a cornerstone of the long-term growth plan was reversing the decline in growth in the farm sector but said the "performance of agriculture appeared to have deteriorated even further".
Singh said the sector - which employs more than 60% of India's workforce - is likely to record an average growth of 1.5% in the first three years, compared with the target of more than 4% growth for the five-year period.
Implications for agriculture
"The slippages that have been recorded in the growth rate of the economy, especially agriculture, have wide-ranging implications ... growth of employment and reduction in poverty are both intimately linked to growth performance," he said.
The prime minister said his government had initiated a food-for-work programme in rural areas and another for universal education.
"It is important that as a country, we learn to walk on two legs, one embracing the processes of high growth and the other on economic development to the marginalised," Singh added.
The economic growth rate, he added, needed to be stepped up substantially to raise money needed for priority areas such as infrastructure, agriculture, education, health and employment.
The country's economy grew 6.2% year-on-year in the December quarter - its slowest rate in 18 months - pegged back by a poor summer monsoon that hit farm output.