The U.S. investment house had previously projected Asia's third largest economy to grow 5.8 percent in the year ending March. It also reduced its estimate of GDP growth for 2013/14 to 6.1 percent from 6.6 percent.

Economists of Citi, CLSA, CRISIL have also scaled back India's GDP forecast last month.

Economic growth languished near its slowest in three years in the quarter that ended in June but was slightly better than expected at 5.5 percent, provisional data released on Friday showed.

High fiscal deficit, strong wage growth in rural areas and a decline in private investment is leading to "stagflation-type environment," Morgan Stanley said in a report.

"In the event of continued inaction from the government, we see very high risk of a potential deeper macro stress scenario," Morgan Stanley said, warning that policy sluggishness could push growth further down to 4.3 percent in the current fiscal year.

In July, RBI revised GDP growth projection to 6.5 percent for 2012/13 from 7.3 percent estimated in April.