Optimism that sunny growth figures herald an economic revival in India is probably misplaced – in fact there is little hard evidence to support the idea that Asia’s third-largest economy is heading for a broader and sustained rebound anytime soon.

India’s economy grew 5.7 per cent in the June quarter compared with a year earlier, the strongest pace in 2-1/2 years, accelerating from 4.6 per cent in the March quarter thanks to a rebound in industrial activity.

But the encouraging headline numbers masked the deeper malaise gripping the economy, which is being hobbled by slack consumption, weak business investment, creaking infrastructure and painfully slow structural reforms, economists say.

Prime Minister Narendra Modi, trumpeted the growth data on a visit to Japan, saying it had “generated huge positive sentiment”.

But there is a difference between sentiment and ground reality. Based on the evidence at hand, Modi’s goal of scripting a broader, lasting upturn appears some way off.

Much of the growth in the last quarter came from robust government spending, the pace of which could slow down as Finance Minister Arun Jaitley seeks to stick to this year’s ambitious fiscal deficit target of 4.1 per cent of gross domestic product.

A pick-up in private spending could help offset the slowdown in government spending. But stubborn inflation, which at nearly 8 per cent is too high for the Reserve Bank of India to cut policy rates, and weak employment are hurting consumers.

The HSBC purchasing managers’ index (PMI) for manufacturing in August showed no improvement in employment or inflation, clouding consumer outlook.

A late monsoon and coal supply crunch could undermine rural spending and constrain output at energy-intensive businesses.

Consumers power nearly 60 per cent of the economy, so getting them to spend more is essential for India to end its longest spell of sub-5 per cent growth in a quarter of a century.It needs at least 8 per cent annual growth to create enough jobs for the 200 million Indians who will be reaching working age over the next two decades, the largest youth bulge the world has ever seen.However, without an overhaul of India’s strained public finances, stringent land acquisition laws, chaotic tax regime and rigid labour rules, economists say, it will struggle to consistently grow beyond 7 per cent.

Modi’s record as a leader of Gujarat has fuelled hopes among investors he can carry out these changes. But in his first 100 days in office, the Prime Minister has shown little appetite for structural reforms and has focused more on cutting bureaucratic discretion and speeding up decision making.

Worryingly, capital investment, has still to show tangible signs of an upturn.

Although capital investment rose 7 per cent in the last quarter over a year earlier, it fell 7.4 per cent from the previous quarter.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.