India's official growth rate of 7.5 per cent may be "overstated" and the Narendra Modi government has been "slow" to match its rhetoric in economic reforms, the US State Department said in a report on Tuesday.
The report appreciates the government's economic reforms and measures to streamline bureaucratic decision-making and ease foreign investment.
But it says many of the reforms proposed by the government have struggled to pass through parliament, which has resulted in many investors retreating slightly from their once forward-leaning support of the Bharatiya Janata Party-led government.
The report titled Investment Climate Statements for 2016 notes that the government failed to muster sufficient political support in parliament on a bill that makes it easier to acquire farm land for projects and is still negotiating with the opposition a way of passing the Goods and Services Tax Bill to untangle India's convoluted tax system.
"Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5 per cent growth rate may be overstated," says the report produced by the Bureau of Economic and Business Affairs of the State Department.
There are few quick fixes to the structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localisation requirements, restrictions in many services sectors, and massive shortages of electricity that hinder India's economic growth potential, the report says.
The State Department said the 2014 election marked a turning point in investor sentiment, as a fractured minority government, seemingly unable to advance essential economic reforms, was displaced in favour of a government that had won on a platform of economic growth.
"Additionally, the monetary stewardship of Raghuram Rajan, the respected Governor of the Reserve Bank of India, further boosted investor sentiment," the report said.