By Santosh Mehrotra, former professor of economics, Jawaharlal Nehru University
Can the capital expenditure envisaged in the Budget elicit more formal sector job creation? The claims made by the finance ministry’s Economic Survey 2025-26 about labour force participation rate (LFPR) and worker population ratio (WPR) rising, and the unemployment rate (UR) falling are just that — claims. The facts are as follows. In 2017-18, India reached the highest UR in the history of labour surveys in the country.
The economy slowed over nine quarters from 2017 to early 2020, and then the Covid-19 pandemic sent unemployment shooting up, as the economy contracted (by twice as much as the global economy in FY2021). Hence, 80 million workers went back to agriculture, reversing the exit from agriculture between 2004 and 2019.
Thus, LFPR has risen, as has WPR, and UR fell, but only because women also joined agriculture as unpaid family labour with 40 million additional workers. That is what the capital, labour, energy, materials, and services (KLEMS) researchers, and the Prime Minister have called eight crore new jobs in four years (2020-24).
The Economic Survey admits real wages have not risen for 80% of workers in the last five years, but still has claims that jobs have grown — a rather contradictory conclusion.Overall, the combined capex of the Union government and central public sector enterprises is budgeted at 3.7% of GDP in FY26BE, better than 3.6% of GDP in FY25RE, but lower than 3.8% of GDP in FY24 and 3.9% of GDP in the pre-Covid years.
In other words, don’t expect growth to rise merely on the basis of combined capex.Given this background, one would have expected that economic policy generally, and Budgets post-Covid in particular, would be designed to create non-farm jobs — given that aggregate demand collapsed in the economy, as macro-economic aggregates have shown.
However, the finance minister’s answer, in the Budget 2025-26 speech, has been to give personal income tax (PIT) breaks to the middle class, hoping to revive demand. Given that the middle class itself has had to dissave to maintain consumption, and consumption has barely grown, the tax breaks to 30 million PIT payers (in a workforce of 600 million) is hardly likely to suddenly turn around aggregate demand, let alone encourage private investment and hence generate growth or jobs.
The labour and skill development ministry has received a significant boost, with the Budget 2025-26 allocating `38,746.3 crore — an 80% increase from Rs `21,608 crore in the previous year. Finance minister Nirmala Sitharaman has outlined plans to spend `2 lakh crore over the next five years, reinforcing the government’s commitment to skill development and internship programmes.
Even after so many interventions and schemes like the Pradhan Mantri Kaushal Vikas Yojana (2015 to present), Deen Dayal Upadhyaya Grameen Kaushalya Yojana (2014 to present), and the National Apprenticeship Promotion Scheme (2016 to present), placement data and efficiency of these schemes are not available for monitoring and evaluation. A deeper dive into the implementation of these policies raises concerns.
Despite the increased allocation of funds, the focus seems to be on expanding the quantity of trained individuals rather than increasing quantity while improving the quality of training. The government is prioritising capital expenditure and quick certifications over substantive skill development. They may hold certificates but lack real-world proficiency, and not get jobs.
The government’s ambitious Industrial Training Institute (ITI) Upgradation Scheme, announced in the Union Budget 2024-25 with a proposed investment of `60,000 crore over five years, aims to revamp 1,000 ITIs under a hub-and-spoke model where costs will be borne by the Centre and states equally. The budget for the Scheme increased from `1,000 crore in FY25 to `3,000 crore in FY26. However, the scheme’s formulation and implementation appear haphazard.
Despite significant capital expenditure, there is little emphasis on updating curricula, enhancing teacher training, or improving the overall skill development system.A mid-term evaluation of a similar initiative, the Model ITI scheme, revealed that the share of funds allocated to civil works (57.9%) and equipment purchases (31.3%) was high, with minimal focus on curriculum development or instructor training.
So these efforts may prioritise infrastructural enhancements over substantive educational reforms, limiting the effectiveness of the initiative to address the demands of industry.Finally, there is not so much as a mention of the Internship Scheme announced in Budget 2024-25. It was meant to ensure that lakhs of youth would receive internships in the 500 top firms of India. So what happened to it, citizens would want to know.Meanwhile, the Budget scheme for so-called employment hardly seem promising in respect of non-farm jobs.
The first scheme is the “enhancement of credit availability with guarantee cover”. This is supposed to improve access to credit. The credit guarantee cover will be enhanced for micro and small enterprises, from `5 crore to `10 crore, leading to additional credit of `1.5 lakh crore in the next five years. The second scheme is to promote employment and entrepreneurship opportunities in labour-intensive sectors.
Thus, the government will undertake a Focus Product Scheme for the footwear and leather sectors. Finally, there is a scheme for tourism for employment-led growth. Thus, the top 50 tourist destination sites in the country will be developed in partnership with states through a challenge mode. The land for building key infrastructure will have to be provided by the states. Hotels in those destinations will be included in infrastructure.
These are not exactly schemes that will set the labour market ablaze.For a country that adds six-seven million new job seekers each year; where 46% of its workforce in agriculture should exit farming; and has 100 million youth not involved with education, employment, or training, and which also has about 25 million unemployed, these three Budget schemes are unlikely to address the challenges of job creation.
And if the middle-class tax cuts are not expected to raise consumption demand and hence investment, the needed rise in private investment is unlikely.Our policymakers need to remember that India’s demographic dividend runs out in 2040, when the country will become an ageing society. Without jobs before 2040, the dividend is likely to become a disaster.