While GDP in the region continues to grow, many fund managers believe that the government's unwillingness to tackle problems such as rising inflation and poor infrastructure will hold India back in the long term.
Head of emerging markets strategy at US-based GMO Arjun Divecha thinks that India has actually benefited from a lassaiz-faire approach to government, but this will be shortlived, and has adjusted his portfolio accordingly.
"In India everything is in short supply, mainly due to poor government policy and implementation. There are too few roads, bridges, ports, and educated people," he explained.
"The true irony of India is that that bad government policy has led to high profits because producers benefited from shortages."
According to Financial Express data, MSCI India has returned 388.46 per cent in the last ten years, outperforming MSCI China by 143 per cent.
Performance over 10-yrs
Source: Financial Express Analytics
Investment in this part of the world has returned huge profits to investors in the last decade. The JP Morgan Indian Investment Trust has returned more that 492 per cent in the last ten years.
During this time, an investment of £1,000 in the trust would have returned £6,109.43, compared to £3,164.08 if the same amount was invested into its sister trust, the JP Morgan Chinese Investment Trust.
But despite India's strong growth in the last decade, Divecha believes that the problems mentioned above will catch up with the economy in the long run, and highlights inflation as a particular cause for concern.
He said: "Inflation is picking up in India. Rising incomes are not matched by rising food production, rising salaries are not matched by rising educational quality, and rising commodity prices are not ameliorated by better infrastructure."
Divecha does not believe that valuations in India present the investor with good value for money relative to other emerging markets. He is currently underweight India in his emerging markets strategy.
"High inflation will eat away at the ability of companies to sustain high margins, and markets usually demand a discount from high-inflation countries. Bottom line, one should not expect bad governance to lead to permanent positive payoffs," he added.
Head of client investment strategies Douglas McDowell at Neptune agrees that valuations in India are not as attractive as they once where.
He commented: "Emerging markets are no longer at a discount to the developed markets, but there is still value to be found. However, we tend to be underweight India as we think shares there are too expensive."
Ewan Thompson's Neptune Asia Pacific Opportunities currently has an 11.5 per cent weighting in India, compared to a 31.5 per cent in China.
While chief economist at Invesco John Greenwood believes that the Indian government will have to raise interest rates to combat inflation, he does not believe that this will significantly alter its rate of growth.
He said: "India has seen a rise in inflation in 2010, which will extend into 2011, due to continued rapid growth rates of money and credit. In these economies much of 2011 will therefore be spent raising interest rates and implementing other policies to restrain demand and inflation."
"Nevertheless, I do not expect these policies of restraint to be so severe as to terminate the business cycle expansion."