India's government must take steps quickly to reverse the economic slowdown of an economy that has been one of the engines of global growth, the International Monetary Fund (IMF) said.

Declining consumption and investment, and falling tax revenue, have combined with other factors to put the brakes on one of the world's fastest growing large economies, the IMF said in its annual review of India's economy.

After lifting millions out of poverty "India is now in the midst of a significant economic slowdown," Ranil Salgado, of the IMF Asia and Pacific Department, told reporters on Monday.

"Addressing the current downturn and returning India to a high growth path requires urgent policy actions," Salgado added.

However, the government has limited space to boost spending to support growth, especially given high debt levels and interest payments, the IMF warned.

The IMF said India should avoid using public funds to stimulate growth - so-called fiscal measures - but instead focus on cutting debt to free up financial resources that can be used for investment.

"Economic development projects and enhanced social initiatives in India will be vital in the coming years," the IMF said in its statement. "But to generate the revenue needed to get them off the ground, India's debt - among the highest in emerging markets - must be reduced."

IMF chief economist Gita Gopinath last week said India's slowdown had "surprised to the downside," and said the fund is set to significantly downgrade its growth estimates for the Indian economy in the World Economic Outlook which will be released next month.

The IMF in October slashed its India forecast for 2019 by nearly a full percentage point to 6.1 percent, while cutting the outlook for 2020 to 7.0 percent.

Salgado said India's central bank has "room to cut the policy rate further, especially if the economic slowdown continues."

The Reserve Bank of India (RBI) cut the key lending rate five times this year to a nine-year low, but at its last meeting earlier this month defied expectations by keeping policy unchanged.

The central bank slashed its annual growth forecast for India to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contract.

India's economy grew at its slowest pace in more than six years in the July-September period, falling to 4.5 percent from 7 percent a year ago, according to government data.

Salgado said "the government needs to reinvigorate the reform agenda," including restoring the health of the financial sector in order to "enhance its ability to provide credit to the economy."