When India’s Prime Minister Narendra Modi addresses a high-powered business summit in New Delhi on Friday, he’ll put a positive spin on his government’s economic stewardship. But free-market liberals are already losing faith that Mr. Modi will deliver on his promise to launch India on a path of prosperity.

Two years ago, as Mr. Modi gathered steam ahead of national elections, a small but influential cohort of market-friendly analysts and commentators were among his most ardent supporters. Today many of them have lost enthusiasm...