Why betting on elections won't be legalised

But purely as a theoretical exercise, consider a system where political parties are funded by government largesse. Such systems exist in most democratic nations - India is big exception to the rule

One major problem with India being an electoral democracy is that it is a hugely expensive process. Quite apart from what the Election Commission (EC) claims it spends, it co-opts many bureaucrats from all cadres. Those babus being pulled off their normal tasks imposes large indirect costs.
 
In addition to what the EC spends, and the opportunity costs imposed, there’s the whole dirty business of campaign funding and spending. There are the large sums officially spent by political parties (and rich independent candidates). There are vastly larger “off-book” truckloads of cash spent on hiring goons, handing out illegal inducements