My previous piece argued that foreign investors have priced in a domestic story most commentary has missed. A profit boom built on wage compression rather than demand growth, with a private investment response that has stayed flat despite it. The natural question is whether government policy has corrected the imbalance behind that diagnosis. Seen against the calendar, the record looks less like a sequencing error and more like a government reacting to each crisis as it arrives, with no blueprint tying the responses together.

The 2019 corporate tax cut followed the IL&FS-triggered NBFC crisis and the worst GDP print in years. The PLI scheme followed the COVID supply-chain shock and the border confrontation with China. The 2025 income tax relief followed a market correction and a costly slowdown in urban consumption. GST 2.0 followed, within weeks, the 50% US tariff shock of August 2025. Labour codification, which touches every other lever, was notified only after capital flight became undeniable. Each responded to a specific, dated shock rather than a pre-announced sequence, which is why the four legs of demand—private investment, consumption, government expenditure, and exports—have never moved in sync.

Start with private investment, the lever the government reached for first and most often. The 2019 corporate tax cut, which took the headline rate from 30% to 22% at a cost of roughly $20 billion a year in foregone revenue, was sold explicitly as an investment trigger. Six years later, that cash appears to have gone into deleveraging, buybacks and dividends rather than new capacity. The Production Linked Incentive scheme has disbursed only about 12% of its approved outlay as of September 2025, some $2.75 billion against $22.6 billion budgeted, with investment realised at 57% of target and jobs created at just 32% of the 3.9 million promised. The advanced chemistry cell battery component has commissioned only 1 gigawatt-hour of capacity against 40 gigawatt-hours awarded.

Labour codification cuts both ways here. Flexible hiring and firing could support capacity expansion when demand justifies it, but where firms already profit from flat wages and lean headcount, the same flexibility makes it just as easy to shed labour as to add it. Parliament passed the four labour codes in 2019 and 2020, alongside the tax cut, but they were not notified until November 21, 2025, with central rules still incomplete and states including Maharashtra, Tamil Nadu and Kerala still at the draft stage this year. That six-year gap between statute and partial operation goes a long way toward explaining why the tax cut did not deliver the capacity response it was designed for.

On the consumption side, nothing comparable happened until Budget 2025, five to six years after the investment-side incentives, when the government zeroed out income tax up to roughly $14,000 under the new regime at a cost of about $11.6 billion in revenue, framed as a consumption-revival measure. The timing gap matters less than the reach problem. Wage stagnation driving weak consumption sits with informal, contract, and rural workers outside the income-tax net, so a tax-threshold measure cannot reach them. The GST rationalisation that followed in September 2025, collapsing five slabs into three and moving essentials to 5% or 0%, works through prices rather than income and so reaches further, but its architects call it no panacea, citing a narrow tax base and unresolved revenue-neutrality questions for states.

Government expenditure is the one lever pulled early that has worked, keeping investment-side GDP growing while the other three legs stayed weak. Central and state capex made up about 90% of all infrastructure capital expenditure through 2020-21 to 2024-25, making government the investor of first resort rather than the catalyst for private capital it was meant to be. This engine is now hitting the same fiscal constraint it was meant to solve for everyone else. Central capex grew 18% year on year in the first five months of 2026-27, but non-defence capex is projected to contract roughly 3% in the second half, bringing full-year non-defence growth to about 5% against a budgeted 10.3%, squeezed by subsidy spending up 24% against a budgeted 10% decline, nominal GDP running about 3% below the Budget's own assumption, and a commitment to hold the fiscal deficit at 4.3% of GDP. The lever that has carried the other three for five years is losing steam just as private investment and consumption would need to pick it up.

Exports complete the picture of effort without the right sequencing. India signed six new free trade agreements in four years, including with the UK and the European Free Trade Association, which together with existing partners now cover about 40.5% of merchandise exports. But the agreements have outrun the competitiveness needed to use them. Exports to the United States fell about 21% between May and November 2025 under a 50% tariff regime, and the European Union's carbon border mechanism, active since January 2026, has already cut steel exports to the EU by roughly 24%. Total goods and services exports are tracking toward about $850 billion this fiscal year, short of the government's $1-trillion ambition. Signing them has not been matched by the cost, quality and value-chain upgrades that determine whether they are used.

The government is not without a stated vision. Atmanirbhar Bharat and Viksit Bharat 2047 are named frameworks and have provided the rhetoric for nearly every measure described here. What they have not supplied is an operating blueprint, one that would have delivered labour codification before or alongside the 2019 tax cut, designed the 2025 consumption measures to reach the wage-stagnant majority rather than the taxpaying minority, or built a fiscal buffer into the capex programme before the subsidy overshoot and nominal GDP miss now cutting into the second half of 2026-27 spending. A named destination is not a route. The last six years show a government responding, often at real fiscal cost, to each crisis as it broke the surface, while the wage-share problem identified earlier went unaddressed throughout. The window in which a reactive, crisis-by-crisis approach could buy time is closing because the one instrument that absorbed every shock, government capex, is now itself constrained.

(This is the second and concluding part of a two-part series examining why India’s strong GDP growth coexists with weak consumption, subdued private investment and foreign capital outflows. Part 1 examined the wage and capital-flow story; this part assesses whether policy responses amount to a coherent strategy for rebalancing growth.)