Like China's Olympics, this was meant to be India's chance to show off its potential to the world. Instead, the 13th Commonwealth Games, which start on Sunday, have laid bare a different side of India's economy—one ravaged by an inefficient bureaucracy and thriving corruption.

It isn't a pretty picture, literally. The run-up to the games has been marred by infamous images of collapsed footbridges, stagnant water and a dog's footprints tracking mud through a bedroom meant for athletes.

New Delhi's response has been a scramble to clean up, hoping to make up in a week for a list of missed deadlines and gross mismanagement—much of which was well known. Over a year ago, a survey by the comptroller and auditor general of India warned of a major embarrassment waiting to happen. Last July, an investigation by India's Central Vigilance Commission reported the use of substandard cement and steel, forged records of quality tests, and bloated price quotes in some contracts.

It is difficult to quantify the toll this takes on India's economy. Specifically, problems with the Games could have an impact on tourism—an industry that employs one in 10 Indian workers, says the World Travel & Tourism Council.

More broadly, corruption and mismanagement is undermining the rise of India's middle class. Since 2004, India has averaged an annual growth rate of 8.5%, but measures of income inequality have widened. According to United Nations data, 76% of the population still earns less than $2 a day.

Of course, India isn't alone in facing such problems, but an infamous bureaucracy exacerbates the challenges. To build a factory or warehouse in India, for example, takes 37 procedures, according to the World Bank. At each step of the way, officials try to extract money through bribes, says Jitendra Singh, a professor at the Wharton School. In Pakistan and Bangladesh, by comparison, this takes 12 and 14 steps, respectively.

It aspires to more than triple the annual foreign direct investment to $100 billion by 2017. Having seen how execution of such projects gets snared in India's politics and bureaucracy, investors might find it difficult to commit substantial money.