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A higher subsidy burden and lower growth will weaken the country's fiscal metrics, analyst Atsi Sheth said in the presentation.
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The central bank was seen selling dollars consistently when the rupee would approach the record low of 68.86 hit on August 28.
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.
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Policymakers stepped in late Thursday to calm markets.
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The Indian rupee touched record low of 65.52/dollar on Thursday and is down 16 per cent so far this year despite efforts by policymakers to prop it up.
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The rupee slumped to a record low of 65.56 on Thursday and is headed for a sixth straight session of decline.
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The 10-year yield was last at 9.27 per cent, up 4 basis points on the day, tracking the rupee recovery.
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The rupee tumbled past 63.00 to the dollar, down about 2 per cent on the day and breaching the previous low of 62.03 hit on Friday despite a spate of measures in recent weeks by the central bank and government to defend it.
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The worst performing Asian currency of the year so far hit a new life low of 61.80 rupees per dollar on Tuesday, breezing past a previous low of 61.21 hit on July 8. Central bank intervention helped the rupee recover, but by Wednesday it was sliding once again, to stand around 61.41 by 1.30 p.m.
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Fag-end dollar selling by exporters helped the rupee to recover lost ground and settle at the day's high of 60.77, a gain of 11 paise. The rupee earlier touched an intra-day low of 61.21 on July 8.
The currency fell 3.4 per cent this week, and is below the levels at which it was trading on July 15 when the Reserve Bank of India unveiled its cash tightening steps to defend the currency.
The RBI stipulated on Thursday that foreign institutional investors would require a mandate from participatory note holders to hedge on their behalf.
Forex dealers will keenly watch, instead, if the central bank indicates more measures to stabilise the currency or gives a timeframe for its current action.
Absolutely for customer investing over Rs 50,000 in any financial products.
The rupee fell on Monday on fears of foreign outflows after stronger-than-expected US jobs growth data cemented expectations of an early end to US stimulus measures.
The RBI Governor says he does not have a specific foreign exchange rate target, which raises concerns that the central bank is unlikely to defend any particular level strongly.
RBI cannot aggressively intervene at this stage says the report.
The problems are being compounded by perceptions that India is ill suited to defend the currency in the near-term.
RBI has made it easier for developers to access foreign money to spur low-cost housing projects.
India's unstable politics and slow pace of reforms add to the downside risks said the bank's note.
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