The government needs to be "bold" when it comes to providing liquidity to the banks and when it comes to asking the banks about ensuring credit flow to the consumers, said Tata.
Talking to Fareed Zakaria in an interview for the US news channel CNN, Tata said it will require the government to be bold "in terms of what it puts back into the banks, and what it almost mandates the banks to do in terms of getting the credit to the consumer".
Asked how India would handle the global slowdown and whether he was bullish about the country's prospects, he said, "I think India does not suffer from the same cause of economic downturn that is plaguing the West at this time.
"And I believe that with an adequate infusion of capital and credit into the Indian economy, which the government can easily do at reasonable rates, that we can invigorate, or reinvigorate, the economy on a domestic basis so that we can go through this period of downturn without too much strain in India."
Tata further exuded confidence that domestic demand was strong enough to keep the growth rate at a reasonable level and on top of it, the country did not have toxic papers and subprime and mortgage problems.
"The issue is that money had been drawn out of the economy to combat inflation. And if we can live with a slightly higher inflation, it is my probably uneducated view that we can reinvigorate the economy," he said.
"... The domestic demand is quite strong. What is happening now is that there is no credit in the market, and whatever there is, is at very, very high interest rates."
Asked whether last week's terror attacks in Mumbai, where his group's property Taj Hotel was at centre stage, could scare foreign investors, Tata said, "Yes. I have no doubt that, certainly (in) the short term, that may happen."
Noting that the incidents like these do not happen very often, Tata said, "When it does, it spooks a lot of people, and rightly so."