Tax or spend.

"As India's weight in the MSCI Emerging Market Index has increased over time from ~7% to ~20%," foreign investment in Indian equity should be 20%. But, "On a cumulative basis, EM equities saw USD 1,380 billion in total flows since 2007. Indian equities over the same period, saw USD 168 billion in net flows, ~12% of total EM flows." "Global investors are thus missing out on India's growth story which is reflected in Indian public equities," wrote Arvind Chari. On the other hand, "Disconnect of the market from the real economy seems to be increasing with time, and this is paradoxical." "Despite a GDP collapse of 24% for Q2 2020, and a near 8% contraction for 2020-21," "the market consistently traded at over 30x forward earnings (at one point, it even touched 40x) with dividend yields that consistently went below 1%." "As a result, cycles are becoming tenuous to the point where the market is in danger of losing its traditional role as a barometer for the economy." ET. If markets are unrealistically high, foreign investors could be booking profits, which would explain their net investment at 12%. Following Covid, the fiscal deficit was brought down from 9.2% of the gross domestic product (GDP) in 2020-21 to 4.77% in 2024-25, revenue expenditure was cut from 15.5% of GDP to 10.9%, revenue deficit fell from 7.3% to 1.71% while capital expenditure rose from 2.15% to 3.18% in the same period. But now the government is providing a demand stimulus by increasing the tax free income to Rs 1.2 million and cutting GST rates. They hope that increased consumption will compensate for lower tax rates but it may be difficult to contain the fiscal deficit, wrote AK Bhattacharya. But will tax cuts really stimulate economic growth? "The 1997-98 'Dream Budget' stimulated investment and growth. Tax buoyancy grew stronger during the 1997-2002 period after the budget." But, "The 2008-09 tax cut worsened the fiscal deficit without a lasting boost to growth." And, "The 2019 corporate tax cut has not stimulated private corporate investment," wrote Deepa Vasudevan. "Indian Prime Minister Narendra Modi in a public address...asked citizens to stop using foreign-made products and instead use local ones." Reuters. "In its short life so far, GST has emerged as a big avenue for graft payments. The government has promised to cut compliance costs. But without a decisive end to unnecessary red tape, misclassification, fraud, and corruption may continue unabated," wrote Andy Mukherjee. "Worse, the non-economic institutions that must support economic growth - the police-legal system, bureaucracy and judiciary - remain completely unreformed. They cannot, even if they want to, deliver quality law and order and justice in quick time to citizens and businesses," wrote R Jagannathan. Law and order could catch the real offenders. That could be extremely embarrassing. Much easier to speechify to a committed audience. Foreign investors are wise to restrain themselves. Even 12% is generous.