The IMF said that India had emerged from the global financial slump with a strong recovery since mid-2009 led by domestic demand, particularly infrastructure investment.
"Executive directors commended the authorities for their economic stewardship which has helped India weather the crisis well," the IMF board said following an economic evaluation, known as an Article IV consultation.
"Growth is among the fastest growing in the world, social indicators are improving, and medium-term economic prospects are favorable," it added.
But the IMF board cited near-term challenges, including elevated inflation and strong capital inflows as investors chased high yields.
"Directors observed that low yields in advanced economies and India's favorable growth differentials could raise capital inflows above its absorptive capacity," it said.
"While exchange rate flexibility would remain the first line of defense, reserve accumulation and macroprudential measures could be employed if stron