Morgan Stanley has reduced the forecast of India's economic growth 5.1 percent on Monday citing various reasons like weak global demand, low level of investments and weaker financial position of the government in the country.

The American financial giant had earlier predicted that the Indian economy would grow at 5.8 percent in the year till March. Analysts have also reduced the forecast for economic growth for 2013-14 to 6.1 percent compared to 6.6 percent.

Morgan Stanley said in a report that the India's fiscal deficit, high rural wages and low investment is resulting in a situation of `stagflation'. "In the event of continued inaction from the government, we see very high risk of a potential deeper macro stress scenario," it said.

The agency warned that the weak governance could further reduce the growth to as low as 4.3 percent in the current fiscal year. Other rating agencies including Citi, CLSA, CRISIL have all reduced forecasts for GDP growth in India.

The country's central bank, the Reserve Bank of India (RBI) has earlier revised its forecast for GDP growth to 6.5 percent for 2012-13 from 7.3 percent.