Ahead of Budget FY27, expectations are running high that it will unveil decisive and targeted measures to boost job creation and harness India’s demographic dividend. Experts feel the Budget must bolster the incentives for job creation in the formal and informal sectors of the economy and raise outlays for skilling, besides keeping capital expenditure at elevated levels.
What is required, according to labour market analysts, is continued implementation of employment schemes announced in the previous budgets, including incentives for companies in both formal and informal sectors to formalise operations and create jobs.
Capital Expenditure Targets
Gaura Sen Gupta, Chief Economist at IDFC First Bank, said budgetary capital expenditure of the Centre may increase to around Rs 12 lakh crore in FY27, up from Rs 11.2 lakh crore in FY26. She said policies must be both capital-intensive and labour-intensive.
The Budget’s context is an Indian labour market that presents a mixed picture of progress and structural hurdles.
The monthly Periodic Labour Force Survey (PLFS) data for December 2025, released by the Ministry of Statistics and Programme Implementation (MoSPI), showed the overall unemployment rate (UR) for persons aged 15 years and above rose marginally to 4.8% from 4.7% in November.
Rural unemployment remained stable at 3.9%, while urban unemployment edged up to 6.7% from 6.5%.
However, estimates from the Centre for Monitoring Indian Economy (CMIE) paint a grimmer picture, with monthly UR ranging from 6.28% in September to 6.91% in December 2025—significantly higher than PLFS figures due to methodological differences.
Annual CMIE UR for 2024-25 stood at 8.07%. Of course, the PLFS and CMIE methodologies are significantly different.
Meanwhile, quarterly PLFS data for Q2 shows youth unemployment (15-29 years) rising to 14.8% from 14.6% in Q1, reflecting less job opportunities for youngsters entering the job market.
Although, the Labour Force Participation Rate (LFPR), the share of population in the labour force, for the people above 15 years of age, reached a new high of 56.1% in December, as per monthly PLFS bulletin, up from 55.8% in November, continuing an upward trend since mid-2025.
Global Participation Gap
Since UR under 4% is considered to be full employment, 4.8% unemployment looks fairly good in terms of statistics, VP Singh professor of economics and director PGPM at Great Lakes Institute of Management said. “In true sense, the low LFPR is a limiting factor to our growth potential.
In the OECD countries, LFPR averages 74%. China’s LFPR averages 65.4% for 2024. Increasing LFPR to around 65% implies adding around 70 million additional workers, triggering a virtuous cycle of increased incomes leading to higher consumption prompting producers to produce more and provide even more employment,” Singh said.
A key concern is the large number of central government vacancies, underscoring untapped potential in public sector employment. Nearly 75,000 vacancies in select departments alone, indicate significant scope for direct job creation through faster recruitment drives.
The number of vacant posts in Indian Railways, one of the largest employers in the government sector, is not known as the government has not shared the data to the Lok Sabha.
On private sector performance in FY26 in terms of creating more jobs, Sen Gupta observed that investment remains cautious. Manufacturing capacity utilization is elevated, but fresh capacities have not materialized significantly.
Bank credit growth has been driven mainly by micro, small and medium enterprises (MSME), while large corporate borrowing stays subdued.
Rajani Sinha, Chief Economist at CareEdge, highlighted disguised unemployment in agriculture, where, she said, around 44% of the workforce remains despite low productivity needs. “Boost agri-related sectors like processing, horticulture, and floriculture for higher-value jobs,” she recommended. “In manufacturing, prioritize export-oriented, labour-intensive areas.”
MSME Growth Linkages
Rahul Singh, Associate Professor at O.P. Jindal Global University, said the Budget should link growth to large-scale employment through stronger MSME support, targeted hiring incentives, and industry-aligned skills.
“Labour-intensive sectors like manufacturing, construction, and services need policy certainty to convert private investment into quality jobs across regions.” He noted early momentum from prior schemes but stressed the need for faster execution.
The government in July 2025 launched Employment Linked Incentive (ELI) scheme, with incentives up to Rs 15,000 for first-time employees.
The ELI Scheme was announced in the Union Budget 2024-25 as part of prime minister’s package of five schemes to facilitate employment, skilling and other opportunities for 41 million youth with a total budget outlay of Rs 2 lakh crore.
Singh said since the implementation of the scheme, the UR has fallen from 5.3% in July to 4.7% in December. According to him, the Union Budgets have been allocating “disproportionately higher amounts” to the Department of Higher Education in comparison to ITIs and skill training centres in recent years. This trend must reverse, he said.