The North-South divide still looks sharp whichever side of the Equator you're on, but last week was a departure insofar as the South had reason to cheer while the North... not so much. India reported it's GDP growth data for the first quarter (April-June) of the 2010/11 fiscal year, and the economy grew 8.8 per cent, its fastest pace in two years. This is in marked contrast to the news here in the US, where disappointing jobs and housing data have renewed fears of a double dip recession. The new numbers confirm India's status as the world's second fastest growing (large) economy, after China and reiterate the strength of the country's recovery from the global recession. Even an utterly bizarre mistake by the statistical organisation that collects and interprets economic data couldn't rub the sheen off these figures. (The Central Statistical Organisation's initial numbers were way off on consumption and investment growth).

Sharp rises in both farm and manufacturing output helped the country to grow at a blistering pace. But beyond the shiny headline numbers is a wealth of concern.

India's growth has been driven by domestic demand, unlike China, where growth is underpinned by exports. But a closer examination of the numbers reveals that consumption has been driven mainly by the middle and upper classes. Rural consumers at the bottom of the pyramid, whose wealth consumer goods companies have been so eager to tap,  have not been spending at the same rate. Persistent and high inflation – the year-on-year inflation rate is currently 11.47 per cent – is the reason, as the poor, who still constitute the bulk of India's population, spend a greater proportion of their income on food. The central bank has raised interest rates to try and rein in inflation and the effect of that has not yet been reflected in data, because that will impact investment. Further increase in interest rates has been mooted, which has investors nervous. This year's numbers also benefit from a comparison to a low base from last year. A renewed slowdown in the rest of the world will hurt the Indian economy too, although India is not particularly dependent on foreign trade.

Economists and analysts have long voiced concerns that the country's lack of infrastructure  in terms of roads, electricity, housing and schools could derail Indian growth. Investment in these areas is often insufficient, and projects have a way of getting delayed. Consider the ambitious Golden Quadrilateral project. It is meant be a highway network connecting India's four main cities, Delhi, Mumbai, Kolkata and Chennai. Work on the quadrilateral began in 2001 but has yet to be completed. The federal government recently accepted that due to delays in completing various power projects, it would be unable to meet its target for capacity generation in the 2007-12 period. There is some China-envy amongst the Indian intelligentsia because of the perception that China has been able to add infrastructure far more effectively than India – a perception that is, from all accounts, quite accurate. Some of all this can be explained by India's messy democratic process – certainly, it has been a factor in the delay in the construction of the Golden Quadrilateral as land acquisition is a heavily controversial subject – but a lot of it has to do with the inefficiency of the country's large, bloated bureaucracy.

This doesn't mean that growth is going to collapse, but it does suggest a need for more adept fiscal and monetary management. The finance minister, Pranab Mukherjee, has targeted 9 per cent growth in the 2011/12 fiscal year and acknowledged that “timely policy action and better corporate governance” are required if the country is to achieve that pace. And he has hinted at some financial reform. But until the bureaucracy is streamlined drastically – a politically unpopular and, indeed, impossible task – a jump into the double-digit growth that many have dreamed of looks unlikely.

Reach columnist Yamini Lohia here.