A few days ago, the Press Information Bureau wagged its finger at journalists disapprovingly and sent out a note that they should not do speculative stories about the forthcoming Budget which will be presented on February 1.
In reality there have been very few stories about the Budget, speculative or otherwise. For the first time since 1958 there is virtually no interest left in it.
That, it might be recalled, was the year when the practice of budgets turning into weapons of mass income and consumption destruction started. The government was trying to become the leading industrial investor.
It did, too, until 1966-69 when two droughts and two wars, one with Pakistan and one with China, forced it to stop. After 1972, it became the leading income distributor — taxing the rich to ‘help’ the poor. Little wonder that people used to be petrified at the prospect of the Budget in those years.
But not anymore. It holds no terrors any longer because there’s absolutely no room left for the government to fiddle with tax rates.
Corporate taxes were reduced sharply about six years ago, to East Asian levels. Last year income tax was also reduced. Indirect taxes, too, after the GST cuts last September are now as low as they will ever be. India has become a country with reasonable tax rates. State-sponsored extraction, as opposed to bureaucracy-sponsored extraction, has mostly gone.
So in terms of overall taxation India is nearly back to the pre-Second Five Year Plan era. And therein lies a peculiarly Indian problem that concerns private sector investment. It is like the proverbial horse that, despite being taken to the water, refuses to drink it.
This was the reason, in the first place, why the government had to become the lead industrial investor in the 1950s. So the Modi government also tried that till last year.
But now, like earlier governments that had stepped into the breach, it, too, has run out of money. You can’t tax less and at the same time indefinitely spend more on investment, defence and welfare.
Hesitation or recalcitrance?
I asked some friends who have held top CEO jobs in the private sector what the problem now is.
They said income growth, slow consumption growth and therefore stagnant capacity utilisation, debt restructuring or repayment,the high cost of land acquisition, complex labour laws, capricious government policies, poor logistic infrastructure, regulatory complexity, lack of skilled workers etc are some of the reasons. And, of course, pervasive corruption.
Even after three decades of trying, India hasn’t been able to provide an environment that encourages investment. The system, as it’s called, is completely antithetical to government-induced risk. And those are plentiful.
A friend who runs a small business said he does it only because he doesn’t know anything else. He said he’d earn more simply by parking his money in fixed deposits which is risk free with a 7 per cent annual return instead of a lower return after the persistent and unpredictable hassles of investing in, and running, a business.
This wasn’t always so. Even when Nehru decided to let the government take the lead in industrial investment, and began the nonsense of industrial licensing, things were not as bad.
But a gradual decline began, as with so many other things, in the 1970s, and accelerated after that. Governments became hazardous for private investment.
The BJP even after running the country for 17 years, in two stints, hasn’t been able to change this. All that talk of ease of doing business is just that so far — talk. It’s not apparent on the ground.
What can the Budget do?
So how much can the Budget address this problem? Not much directly, not anymore. The Finance Ministry has done what it can.
This is very worrying because the Modi government has virtually no means left to get the private sector to start investing. It’s like the problem of the ‘native’ — in the eyes of some colonial economists — who “doesn’t respond positively to incentives.”
The horse is refusing to drink and there’s nothing the governments, central and state, can do in the current environment of intensely competitive politics and untrammelled corruption.
Both problems have to be addressed if the Viksit Bharat objective is to be achieved. We need simultaneous state and national elections and a massive crackdown on corruption, like China.
The private sector needs to double its investment rate between now and 2035. The only thing stopping it is the government which is so reluctant to act against its own employees.
Let me conclude by reminding it — because it has a strong preference for Hindi — of the Hindi saying “Ghar ka bhedi, Lanka dhaye” (betrayal comes from a family member).
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Published on January 12, 2026
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