The problem of the Indian budget exercise has been to somehow get the reluctant individual to pay income tax. Step back and see that a government needs tax revenue to run the government itself, pay for government institutions (health, education and defence, to name just a few), spend on infrastructure, pay interest on borrowings and so on. A prudent government’s capacity to spend depends on its capacity to raise revenue through taxes—both direct and indirect. A profligate government will simply borrow recklessly and kick the problem down the road for future governments to handle.
A key problem that faces the Indian budget is that too few people pay income tax, with just 32.3 million people filing ITR-1 (the return for salaried individuals) on a population base of 1.37 billion. Successive governments have attempted to get the reluctant Indian to pay income tax and failed. Therefore, they have used a tax on incomes and profits on investment to try and get those who should pay, to pay. But successive governments have then gone on increasing the burden and the complexity of this taxation so that today two taxes are in a total mess: the dividend distribution tax (DDT) and the capital gains tax.