The authorities should allow exchange rate flexibility to ensure sufficient stock of foreign reserves while balancing its impact on inflation and corporate foreign liabilities, Asian Development Bank said.
In order to convince the market that India still remains on the strong and sustainable growth path, it said the country must strengthen its structural reforms to expedite large infrastructure projects that are delayed and to encourage foreign investment.
"One bright spot is the recent effort at expediting regulatory clearance for several large projects in key infrastructure sectors such as power, roads, and railways by the Cabinet Committee on Investment," it added.
With general elections scheduled in the first half of 2014, it said a new government may help give fresh impetus to resolve "structural problems".
It added that a softer currency and expected pick-up in economic activity in major markets should see Indian exports grow at a faster clip than in 2012-13.
"Policy measures since July 2013 to entice foreign investors back to India to help finance the current account deficit are expected to gain traction in the near future."
On rising prices, the Asian Development Bank report said there has been spike in food and fuel costs on account of currency depreciation, but tighter monetary policy will have some mitigating effect, along with depressed economic activity.
It said inflation for this fiscal is now seen at 6.5 per cent, below the 7.2 per cent forecast in April.