Goldman says the downgrade reflects the more difficult external funding conditions for Asia as markets increasingly anticipate Fed tapering and eventual exit from unconventional monetary policies.
Investment bank also puts out more bearish forecasts for the rupee, expecting the currency to trade at 70 in three months, at 72 in six months and back to 70 in 12 months.
"We think that there could be some risks of near-term overshooting of our targets if economic and financing conditions worsen, and especially if there are pressures on the banking and corporate sectors due to weakness in growth," it said.
Goldman downgrades comes after Nomura and HSBC also cut their forecasts for India this week.