In its annual report on India, the world-wide rating agency, acknowledged that there was a growing recognition of the intransigence of these problems across political parties, business leaders and a broad segment of the population, which could lead to deepening of the necessary efforts over the medium term.

It found large government deficit particularly worrisome in view of the heavy public-sector debt and debt-servicing burden. The government's increasing financing needs had raised its dependence on domestic bank borrowing, contributing to tightening of monetary policy and exacerbating the economic slowdown, it said.

Moody's analysts were also concerned aboutthe rise in inflation, especially of essential food items, and higher prices had increased tension in an already divisive political atmosphere, they opine. Infrastructure and credit limitations were among the factors that restrained output in the past two years, according to its lead analyst on India, Kristin Lindow.