Wanda Sung-hwa Tseng, deputy director of the fund's Asia and Pacific department, said that while "the near-term outlook for India is very favourable," deficits, public debt at over 80 percent of gross domestic product and inflation all loomed as threats.

"Clearly the fiscal deficit is a constraint on growth. In particular, because of debt and fiscal deficit they have not been able to devote enough resources to infrastructure spending," Tseng told Reuters in an interview.

"The area they need to do more work on is investment," Tseng said, contrasting India's problem to that of China, which suffers from wasteful over investment.

"Growth is at 7 percent but they need to grow at a higher level to reduce poverty," she said.

Tseng also cited rising oil prices and credit growth as inflationary factors the IMF worried about but were not captured in the relatively low Indian headline inflation rate of about 3 percent.

India had not fully passed on to consumers the rising fuel bill from record oil prices, she said.

"We estimate that oil prices will have to go up by maybe another 50 percent in order for full pass through of international prices," said Tseng. "This will feed into inflation."

She also said Indian consumer credit had expanded by about 30 percent this year, a development that reflected reform of an untapped sector and helped fuel consumption, but also carried inflationary pressures.