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Modi's first 365 days: 'Sparks but no fireworks'

Prakash Singh | AFP | Getty Images

Indian Prime Minister Narendra Modi's charm appears to be wearing off as the leader's first year in office draws to a close, with investors looking for less rhetoric and more action.

There were "sparks but no fireworks," Shilan Shah, India economist at Capital Economics said, summing up Modi's maiden year.

"Our view that the economic reform agenda would fall short of (at times frenzied) expectations appears to have been proved correct for the time being," Shah wrote in a note.

Modi was sworn in as Prime Minister on May 26, 2014 after a sweeping election victory earlier in the month. Seen as the "man who would remake India," the former Gujarat chief minister came into office amid much fanfare and great expectations – from both inside and outside the country.

His government's strong mandate had given rise to optimism for reforms that would unlock India's economic potential.

Admittedly, Modi has made strides in a few crucial areas: putting India back on the global radar, cracking down on corruption and improving transparency and accountability in governance, say analysts.

"But progress on pushing through the 'big bang' reforms that many had hoped for, including on land, tax and labor laws, has been underwhelming. So far, not enough has been achieved to suggest that India can fulfil its economic potential over the medium term," said Shah.

Investors' fading optimism has manifested in the country's stock market, which has undergone a pullback in recent months. The benchmark S&P BSE Sensex is down almost 7 percent since the end of January.

One reason Modi's agenda has stalled is because his coalition – the National Democratic Alliance (NDA) – lacks a majority in the upper house of parliament, the Rajya Sabha, making it more difficult to push through contentious reforms.

"This parliamentary infighting has stalled and derailed a series of Modi's plans to revitalize India's sagging infrastructure and slowing economic growth," global intelligence firm Stratfor wrote in a recent note.

Read MoreModi's maiden year: 10 key milestones

In an effort to maintain momentum, Modi has focused on securing diplomatic and economic victories abroad.

He has gone on more than a dozen official visits to strengthen ties with neighbors and world powers, from China to the United States.

"Although Modi has attempted several charm offensives throughout the year, his domestic policy quagmire has kept many potential diplomatic and economic breakthroughs from developing further," Stratfor said.

"Bilateral visits with Japanese, American and Australian heads of state have generated billions of dollars (in investment pledges that have yet to be actualized."

Honeymoon over

Maintaining the domestic support and good will that Modi has enjoyed over the past year with will be a challenge, say analysts.

"Sustaining that optimism will not be easy," said Radhika Rao, economist at DBS Research.

"GDP growth should rise but not as quickly as many expect or hope. In fact, some of the reform measures, including subsidy rationalization, smaller hikes in sup­port prices and a clampdown on black money could crimp growth in the short-term," she said.

A return to 9-10 percent growth is probably some years away, Rao said.

But she hasn't lost hope: "Much groundwork for reform has been laid but the implementation still lies ahead. Execution risks loom large but we are optimistic."

Modi's next steps

Much needs to be tackled in the coming year in order to keep investors enthusiastic about Modi's leadership.

High on the agenda is pushing the contentious Land Acquisition Bill through both houses of parliament, says Rao. This is key to unclogging existing projects and encouraging fresh investment.

Second, India's infrastructure gaps need to be plugged.

Read MoreNarendra Modi: Some in India impatient for faster change

"Funding requirements for such projects are enormous and involve long gesta­tion periods. With the private sector still cleaning up balance sheets, foreign collaboration is needed and expected to bridge some of the funding gap," said Rao.

Finally, the agricultural sector needs support after successive weak har­vests, said Rao.

"Rather than extending subsidies or raising support prices, reform should focus on efforts to improve farm productivity through mechanization, irrigation, efficient warehousing facilities and the establishment of the often discussed nationwide agriculture market."