By TV Mohandas Pai & Nisha Holla
Budget 2026 arrives at an inflection point in India’s economic journey. Over the past 12 years, India has undergone one of the most consequential development phases since Independence.
Nominal GDP has expanded from roughly $2 trillion to $4 trillion, driven by sustained public investment, large-scale infrastructure creation, and the delivery of basic amenities to millions of citizens. Roads, railways, power, housing, water, sanitation, digital connectivity, and financial inclusion have transformed everyday life for the majority of Indians.
This phase of nation-building has also created the conditions for faster economic growth and formalisation. A large aspirational class has emerged, particularly among workers transitioning out of agriculture. The foundations have been laid. The next decisive challenge is clear—job creation must be the priority of Budget 2026.
The case for putting employment at the centre of fiscal policy is demographic. India is entering a prolonged phase of labour market pressure driven by a large youth bulge. Citizens born between 1990 and 2010, estimated at over 50 crore, are either already in the workforce or will enter it over the next decade.
For the next 15-20 years, this cohort will demand stable, reasonably paid, and dignified jobs.
If this demand is met, India can convert its demographic profile into a sustained growth advantage. If not, the dividend risks becoming a structural constraint. Employment, therefore, is a macroeconomic and socio-political imperative.
Sustained Formalisation Trends
Contrary to claims of “jobless growth”, administrative employment data tells a more nuanced and encouraging story. India’s formal employment base has expanded steadily over the past decade, with a sharp rebound after the pandemic.
Nominal GDP grew from `125 lakh crore in FY15 to `331 lakh crore in FY25, an absolute increase of `206 lakh crore, translating into a nominal compound annual growth rate of 10.2%.
Alongside this expansion, formal employment has grown through the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) systems, which record Aadhaar-linked subscribers only after payroll remittances have been verified.
The EPF added 1.22 crore new subscribers in FY22, 1.38 crore in FY23, 1.31 crore in FY24, and 1.3 crore in FY25. From September 2017 to April 2025, the EPF recorded around 9.15 crore subscriber additions.
ESI shows a similar pattern, with new additions of 1.49 crore in FY22, 1.67 crore in FY23, 1.67 crore in FY24, and 1.68 crore in FY25, taking cumulative additions since September 2017 to approximately 9.98 crore. There is some overlap between the two systems, but the scale and persistence of additions across both databases indicate sustained formal job creation.
The argument that these numbers merely reflect formalisation rather than new employment does not withstand scrutiny. Employees’ Provident Fund Organisation (EPFO) data separately tracks establishments that remit their first cheque in a given year, capturing existing workers being formalised.
In FY25, 52,309 establishments remitted their first cheque. Enterprises join the EPFO when they cross 20 employees, which means10.5 lakh workers were formalised through first-time remitting firms in FY25. Against total EPF additions of 1.3 crore, this still leaves roughly 1.19 crore net new jobs created during the year.
Annually, over 50% of new EPF subscribers and over 48% of new ESI subscribers fall in the 18-25 age group. It is implausible that such a concentration of young workers represents legacy employment being formalised. They are overwhelmingly first-time entrants to the labour market.
While the trajectory is positive, it is not sufficient. Three structural gaps remain. First, the scale of job creation must rise to absorb the accelerating movement of labour out of agriculture, which has averaged around 1 percentage point per year since 2000 and is now speeding up.
Second, job quality must improve. Fewer than a quarter of formal jobs pay above `20,000-25,000 per month, limiting upward mobility and consumption growth. Third, job creation must be geographically aligned with labour supply.
Women’s employment trends underline this challenge. The share of women working in agriculture has risen in recent years, and self-employment among rural women has expanded sharply, supported by self-help groups. Female labour force participation has increased meaningfully, reflecting aspiration rather than distress.
Yet, commuting constraints and relocation costs continue to limit access to formal employment. Job creation closer to home is essential.
India now needs to move beyond fragmented schemes and adopt a coherent, three-tier employment strategy, embedded in Budget 2026.
First, India should create special employment zones focused on the poorest 350 districts, explicitly targetting labour-intensive manufacturing and services. Employers must receive a direct incentive of `2,000 per month per new employee for 24 months, conditional on verified EPF and ESI contributions.
In addition, the government should bear the employer’s EPF and ESI costs for the same period. This directly offsets training costs and initial productivity losses while ensuring accountability through payroll data. Locating such zones near labour supply reduces distress migration and anchors industrial activity in the heartlands.
Accelerating Planned Urbanisation
Second, India must accelerate urbanisation through a focused push in around 5,000 census towns over the next five years. Urbanisation itself is a powerful job creator, particularly in construction, services, logistics, and small manufacturing.
India is likely to move towards 40-45% urbanisation, a shift that will permanently alter economic geography and political incentives, especially after the 2027 delimitation. Investing in housing, mobility, and basic services in smaller towns can turn them into service hubs for surrounding districts, creating dense local labour markets and higher-quality employment.
Third, the top 10 Indian cities must be treated as national productivity engines. These cities account for a disproportionate share of GDP and tax revenues and are increasingly integrated into global value chains.
A committed investment of `5,000-10,000 crore per city per year for five years, focused on transport, mobility, and liveability, would raise productivity, attract high-wage industries, and expand the tax base.
For too long, growth policy has been implicitly capital-first. That strategy has delivered results and must continue. But, the next phase of India’s development must be citizen-first, with employment as the primary channel through which growth translates into prosperity.
A jobs-led strategy also strengthens fiscal space by expanding the tax base, raising productivity, and sustaining social stability.
By explicitly organising policy around large-scale, high-quality job creation across districts, towns, and cities, India can ensure that the gains of the past 12 years translate into durable prosperity for the next generation.
Respectively Chairman and Research Fellow, 3one4 Capital
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.