India's Wholesale Price Index rose by 6.87 percent in July, below consensus forecasts, but concerns remained about high core inflation and an ongoing drought.

Gokarn added that India needed to follow a path of fiscal consolidation if it wanted to avoid a downgrade of its sovereign debt rating.

Global ratings agencies Fitch and Standard & Poor's have warned that India could lose its investment-grade debt rating if steps such as cutting fuel subsidies are not taken to narrow the fiscal deficit.