Interesting, India reads like a libertarian paradise. I'd expect it to be an economic powershi.
It's literally the opposite of that. Corrupt government is still the presence of a government/state.
Right, the Government gets in your way (Bribes, red tape for everything etc.) in every step instead of staying out of it, because they have every intention to extract maximal resources through corrupt means. While this may not have been the intention of the Government polity (indeed, the corrupt wealth isn't reflected in tax receipts, but a flourishing black market) it is what ends up happening.
The answer is that we don't.
If we did have better functioning police systems, you would see a lot more growth in a lot of Indian cities. The biggest cities escape the tyranny of local powers simply because people living in these cities accumulate vast financial resources to essentially circumvent Government services (e.g. you will see private guards everywhere, gangs running protection rackets that try to ensure that "Justice" is served etc.).
This lack of basic government services and infrastructure can be crippling, especially to businesses and people looking to make long term investments.