Can Budget 2025-26 deliver on job creation?

The Budget for 2025-26, while ambitious in many respects, raises serious questions about its potential to address one of India’s most pressing issues—job creation. Despite claims made by the finance ministry, particularly regarding the rising labour force participation rate (LFPR), the worker population ratio (WPR), and the falling unemployment rate (UR), a deeper analysis reveals the stark reality: India’s employment situation is far from being transformed. The reality on the ground paints a different picture from the optimistic assertions of a government eager to demonstrate progress. The claims that the government has created a significant number of jobs, particularly in the formal sector, are contradicted by the evidence.
India’s labour market has faced significant challenges in recent years. In 2017-18, the country saw the highest unemployment rate in its history, a record that remained unbroken for several years. The economy, which had been slowing since 2017, was further crippled by the Covid-19 pandemic, which sent unemployment rates soaring. As the economy contracted by twice the global rate in FY2021, millions of workers were forced to return to agriculture. This return to agriculture effectively reversed the trend of urban migration that had been occurring between 2004 and 2019. The return of 80 million workers to the agricultural sector, along with a significant number of women joining as unpaid family labour, is often cited as a rise in LFPR, WPR, and a reduction in UR. However, this shift does not reflect a true improvement in employment quality or the creation of long-term, sustainable jobs in the formal sector.
The Economic Survey for 2025-26 itself admits that real wages have remained stagnant for 80% of workers over the last five years, a critical point that undermines any claims of real employment growth. While the government insists that jobs have increased, the wage stagnation and the shift of workers back into agriculture paint a picture of a labour market struggling to recover, let alone grow in a meaningful way.
In the Budget for FY2026, the Union government’s capital expenditure (capex) is projected at 3.7% of GDP, which is marginally higher than the previous year but still lower than pre-Covid levels. This suggests that while there is an emphasis on infrastructure development, the scale of the investment is unlikely to result in a significant uptick in job creation, particularly in the formal, non-farm sector. Given the backdrop of a struggling economy, one would have expected the Budget to prioritize policies aimed at creating non-farm jobs and boosting aggregate demand. However, the finance minister’s approach seems to revolve around personal income tax (PIT) cuts, targeting the middle class as a means to revive consumption. This strategy, however, may prove ineffective, as consumption growth has been sluggish, and many middle-class individuals have resorted to dissaving to maintain their consumption levels.
While the allocation to the Ministry of Labour and Skill Development has seen a notable increase—an 80% rise to Rs 38,746.3 crore—the focus seems to be more on increasing the quantity of trained workers rather than improving the quality of training and enhancing the employability of these individuals. The government’s commitment to skill development, as reflected in its plans for internships and training programs, is commendable, but there are concerns about the efficiency of these schemes. Programs such as the Pradhan Mantri Kaushal Vikas Yojana, the Deen Dayal Upadhyaya Grameen Kaushalya Yojana, and the National Apprenticeship Promotion Scheme have been in place for years, yet placement data and measurable outcomes are hard to come by. Despite the increased funding, the emphasis seems to be on infrastructure development—such as expanding the number of Industrial Training Institutes (ITIs)—rather than on improving curricula, teacher training, or addressing industry demands. This focus on capital expenditure rather than substantive educational reform limits the potential effectiveness of these initiatives.
Another troubling aspect of the government’s approach is its reliance on credit availability and guarantees to stimulate job creation. The Budget includes a scheme to enhance credit availability for micro and small enterprises, but this alone is unlikely to address the broader challenges of job creation. The additional credit of Rs 1.5 lakh crore over five years, while beneficial to some extent, will not be sufficient to transform the labour market, particularly in sectors where demand is not growing rapidly enough to absorb the millions of new job seekers entering the market every year.
The government has also introduced several schemes aimed at promoting employment in labour-intensive sectors, such as footwear, leather, and tourism. While these sectors may provide some employment, they are unlikely to absorb the large numbers of young, educated job seekers entering the market every year. The tourism sector, in particular, may create jobs in specific regions, but it is unlikely to address the broader needs of the workforce or provide the high-quality jobs that India’s young population demands.
Given the backdrop of India’s demographic challenges—its rapidly expanding youth population, with 100 million youth neither in education, employment, nor training (NEET), and the looming prospect of an ageing population by 2040—the country faces an urgent need to create jobs at a scale and pace that the current policies do not seem to support. Every year, India adds six to seven million new job seekers to the labour market, and yet, the schemes outlined in the Budget are unlikely to meet these needs. In addition, with a significant portion of the workforce still dependent on agriculture and the informal sector, there is little evidence to suggest that these measures will generate the kind of formal sector jobs needed to absorb this growing pool of workers.
India’s demographic dividend is at risk of becoming a demographic disaster if the country does not take urgent steps to address its job creation challenge. The current Budget, with its focus on infrastructure development, tax breaks for the middle class, and credit guarantees for small enterprises, does not offer the kind of transformative solutions needed to tackle the massive unemployment crisis. Without a substantial increase in private investment, genuine reforms to the education and skill development systems, and policies that prioritize job creation in the formal sector, India’s demographic dividend could become a burden rather than a boon.
While the 2025-26 Budget includes several initiatives aimed at boosting the economy and creating jobs, the overall impact on job creation in India’s formal sector seems likely to be limited. The country’s massive unemployment crisis, particularly among its youth, requires a more comprehensive and targeted approach. With the demographic dividend quickly running out, India cannot afford to waste any more time. The country needs bold, structural reforms that prioritize sustainable job creation and investment in human capital. Without such reforms, the promises of the Budget will remain unfulfilled, and India’s future will be shaped by an underemployed and disillusioned workforce.
Dipak Kurmi