MUMBAI —India's economy grew five percent last year, its slowest expansion since the 2008 global financial crisis, official data showed Friday, underlining the challenges facing Prime Minister Narendra Modi's government.

But New Delhi said it expected a recovery this year, pegging growth at 6.0 to 6.5 percent for the financial year 2020-21, as officials published an annual Economic Survey ahead of the full budget which will be released on Saturday.

"Weak global growth impacting India as well as investment slowdown due to financial sector issues had led to growth dropping to a decade-low in current fiscal," the report said.

At 5 percent annual growth was sharply below the 7 percent forecast in the survey a year earlier and the slowest increase since 2008, when the economy expanded by just 3.8 percent.

Asia's third-largest economy is facing strong headwinds with a contraction in investments and manufacturing, and growth for the September-ended quarter coming in at 4.5 percent, the lowest in six years.

India needs to create jobs for the 1.2 million new entrants to the labor market every month but unemployment levels have hit a four-decade high.

Finance Minister Nirmala Sitharaman announced a slew of reforms last year including corporate tax rate cuts and an injection of funds into a nationwide infrastructure project.

The report urged the government to relax its fiscal deficit target — currently 3.3 percent of GDP — to spark a revival.

India must spend about $1.4 trillion on infrastructure projects by 2025 to achieve its previously announced target of a $5 trillion economy, it said, adding that New Delhi needed to make it easier for entrepreneurs to start new businesses.

"The government must use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020-21," it said.

After a shock cash ban in 2016 which saw most high-value bank notes withdrawn from circulation, a botched nationwide tax rollout and a liquidity crisis in the shadow banking sector, the government is struggling to generate revenues and received a $24 billion windfall from the central bank last August.

New Delhi on Monday announced plans to sell its 100 percent stake in debt-crippled national carrier Air India after an earlier push to sell part of the airline found no takers.

The government has also eased restrictions on foreign investment in four key sectors, including coal mining, in an effort to attract more capital from abroad. — AFP