Will India break out of its downward growth spiral?

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India's economy appears to be stuck in neutral, with gross domestic product (GDP) growth forecast to remain below 5 percent for the fourth consecutive quarter in the July-September period.

GDP data, due out on November 29, is expected to show that Asia's third largest economy grew 4.6 percent on year, according to a Reuters poll, following 4.4 percent growth in the previous three months.

"The appointment of a new central bank governor in September has helped to stabilize the currency and financial markets, although this is unlikely to have had much of an impact on real economic activity," wrote economists at Moody's Analytics - who forecast growth of 4.5 percent.

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"The weight on confidence created by persistent inflation, the weak central government, a volatile rupee, and an uncertain policy environment continues to drag heavily on demand, particularly business investment. Little appears to have changed in the third quarter," they added.

While the government set up the Cabinet Committee on Investment (CCI) to fast track clearances for large projects in January this year, approvals have yet to translate into actual activity on the ground.

On top of a subdued investment environment, a revival in inflationary pressures looks to have weighed on private consumption, said Radhika Rao, India economist at DBS.

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"This along with the hurt to employment and income prospects on (the) weak industrial sector likely slowed consumption spending," Rao, who also forecasts a 4.5 percent GDP print, said.

Economists say the small pickup in growth was likely driven by better agricultural output on above-normal rainfall in the September quarter, sustained government spending, and buoyant exports.

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Exports have been a bright spot for the economy in the recent months, jumping by 13.5 percent to $27.27 billion in October, for example, on the back of a recovery in global demand and depreciation of the rupee which boosts price competitiveness.

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Taimur Baig, chief Asia economist at Deutsche Bank, however, believes the positive drivers of the economy provided a greater boost to the growth than most anticipate.

"The growth figure could well be a pleasant surprise to the markets," he said, forecasting GDP rose at a rate of 5.5 percent during the quarter - the best performance in a year.

"There has been a modest revival in the industrial and construction sectors, finance and trade look buoyant, and public spending has been robust lately. Add to this the impact from a good monsoon and high prices to agriculture sector activity and income," he noted.

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India's economic performance has proved to be a major disappointment in recent times, with growth decelerating from above 9 percent in 2010 to as low as 4.4 percent in the April-June quarter - lagging far behind economic rival China, which has managed to maintain growth rates above 7 percent this year.

—By CNBC's Ansuya Harjani; Follow her on Twitter:@Ansuya_H