It added that the impact of this year's heatwave on domestic food production, coupled with persisting high international commodity prices and input costs for various sectors, will cause a broad-based rise in the inflation rate.
The sharp rise in commodity prices post the Russia-Ukraine conflict is a major cause for concern. The European Union announced in May that it would ban 90 per cent of Russian crude oil by end of 2022.
The rating agency expects crude oil to average in a range of $105-$110 per barrel, which is a sharp increase in comparison to $80 per barrel in the previous fiscal FY22.
Additionally, it forecasts India's real gross domestic product growth at 7.3 per cent, with some downside risks.
The major downside risk mentioned in the report is high crude oil prices, which would cause a domino effect on India.
Besides, slowing global demand for India's exports and high inflation too are a matter of concern.
"Inflation reduces purchasing power and would weigh on revival of consumption - the largest component of GDP which has been backsliding for a while," it said.
The country's current account deficit (CAD) is expected to widen to 3 per cent of GDP this fiscal, up from 1.2 per cent the previous fiscal.
"Elevated commodity prices, slowing global growth, and supply chain snarls do not augur well for India's current account balance," it added.
The rating agency further added that the exchange rate between Rupee and Dollar will remain volatile, with a bias to depreciation of the rupee.
The continued outflows of foreign portfolio investments along with the strengthening of the value of the US Dollar may also become a cause for concern while leading to the depreciation of the Rupee.
It expects the Rupee exchange rate to be at Rs 78 per US Dollar by March 2023, as compared with 76.2 in March 2022.