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The economic survey prepared by the finance ministry, released ahead of Monday's budget announcement for the fiscal year ending in March 2010, said inflation is no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.
India's fiscal deficit ballooned to 6.2 percent in 2008-09 as the government unleashed stimulus spending to insulate the economy against the global downturn.
The finance ministry's snapshot of the economy was largely upbeat and said the outlook for a resumption in the medium term to India's robust rate of growth before the global economic downturn was achievable if the government embraces reforms.
"India should be back on the new trend growth path of 8.5 to 9 percent per annum provided the critical policy and institutional bottlenecks are removed," the report said.
The Indian economy grew at 9 percent or more in the three years that ended in March 2008.
"It is therefore imperative that the government revisit the agenda for pending economic reforms in the first instance with a view to renew the growth momentum," the report said.
While earlier reform calls from the finance ministry were blocked due to political opposition amid the previous government's power-sharing agreement with the left, prospects for liberalisation of the economy are brighter after the Congress party won a decisive election result in May.
The finance ministry's report called for a selldown in stakes of state-run companies to generate 250 billion rupees ($5.23 billion) annually, reform of fertiliser and food subsidies, and an auction of third-generation mobile phone spectrum that it said should be freely tradeable.
It also called for "greater urgency" to removing hurdles to investment in infrastructure by government and the private sector.
While the central bank has slashed interest rates by 425 basis points since October to revive demand, real rates remain high and continue to act as a brake on loan growth.
"The expectation that there could be further cuts in policy rates and in lending rates may have resulted in investment decisions beng deferred," the report said.
It also called for implementation of a goods and services tax (GST) by April 2010 to maximise revenues and simplify the tax regime.
The report said government should take advantage of the recent low price in oil costs to free petrol and diesel prices.
Late on Wednesday, India unexpectedly raised gasoline and diesel prices by as much as 10 percent, passing onto consumers some of the cost of the recent rise in global oil prices.
India imports about 70 percent of the oil it uses and accumulated a huge burden when it kept prices artificially low as global prices hit a record $147 per barrel last year.
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