I think what you're missing is that a vanishingly small proportion of the population actually earns enough to pay income tax and there's a breathtakingly huge number of relatively poor folks. A lot of services are massively subsidised for these folks but there's a billion of them.

The whole Indian railways network is massively subsidized but it's doubtful anyone on HN would travel by anything other than air conditioned if indeed they travel by train (eg. I've never travelled by train after i began working).

In many states, basic groceries are effectively free. The less well off folks buy from these, the "middle class" shops from private traders. However there's a massive number of the less well off.

Not saying there's no corruption, but the scale of the problem is massive.