Big Spending, Few Jobs: The Employment Paradox in Budget 2026

In India, despite the post-2014 'Make in India' push, the industrial trajectory reveals an unfortunate decoupling between value addition and job creation.

(Photo: Kamran Akhter/The Quint)

The Union Budget 2026–27 anchored in a formidable macroeconomic stance estimates the total government expenditure to be of Rs 53.5 lakh crore and a capital expenditure outlay rising to Rs 12.2 lakh crore, signalling a delicate balancing act: a gradual fiscal deficit reduction to 4.3 percent of the Gross Domestic Product (GDP) and a marginal improvement in the proposed debt-to-GDP ratio to 55.6 percent (which looks like a long shot).

Yet, a larger question persists: how much of this ambitious projection game shall translate into realised growth and developmental spending that leads to measurable, progressive social outcomes?

On government spending for capital expenditure (often at the cost of revenue expenditure) fuelled by excessive borrowing, the actual gains measured in terms of private investment or job creation have hardly been realised.

The budget for FY27 allocated Rs 12.2 lakh crore for capital expenditure, sustaining the push to crowd in private investment and jobs. Yet manufacturing accounts for only 12-14 percent of of GDP despite 'Make in India', while youth unemployment hovers around 14 percent and 90 percent of workers remain informal and private investment focuses on capital deepening rather than labour.

Why has this CapEx cycle failed to spark broad employment?

CapEx Push & the Crowding-In Illusion

The Union government capital expenditure rose from Rs 7.3 lakh crore in FY23 to Rs 12.2 lakh crore budgeted for FY27. The expansion is concentrated in roads, railways, power, and logistics infrastructure, with roads alone accounting for 33.9 percent of FY26's CapEx. This push has come at a fiscal cost. Revenue expenditure contracted from 13.6 percent of GDP in FY22 to 10.9 percent in FY25, compressing social spending.

Quarterly Trends in Central Govt Capex

(Source: CMIE, CareEdge)

The CapEx push has been financed through sustained market borrowing. Gross borrowing stood at Rs 15.6 lakh crore in FY26, with a projection of Rs 17.2 lakh crore for FY27. Yet borrowing has not translated cleanly into asset creation. A portion of funds is currently used to offset deficits, meaning debt accumulation is not always matched by productive capacity expansion.

The fiscal architecture compresses consumption support to prioritise capital intensity, raising the question of whether growth is being borrowed rather than built.

Private investment has remained uneven. While project announcements increased, completion rates collapsed from around 40 percent pre-2012 to just 10 percent since 2017. The Centre for Monitoring Indian Economy's (CMIE) data shows private completions fell 52 percent year-on-year in Q4 FY25, even as government projects rose. Where investment has materialised, it has concentrated in power, renewables, and data infrastructure.

Labour-intensive sectors, such as textiles, apparel, food processing, and leather, have seen negligible inflows. The markets crashed by over three percent from the day's high after the FM talked bout hiking the Securities Transaction Tax (STT) on Futures and Options (FnO) trading, despite an 8 percent increase in capital expenditure allocation.

Public Capex & Envisaged Private Project Capex (RBI Sanctioned Projects) FY 2016-FY 2026

(Source: Government of India, Ministry of Finance. Union Budget at a Glance, 2015–16 to 2025–26. RBI Private Corporate Investment: Growth in 2024-25 and Outlook for 2025-26)

Infrastructure lowers costs, but does not determine where industries locate. Land access, worker housing, MSME (Micro, Small, and Medium Enterprises) credit, and skills pipelines remain weak complements to physical connectivity. MSMEs face a credit gap of Rs 30 lakh crore, while only 19 percent of their credit demand was formally met by FY21.

The CapEx strategy has raised capital intensity without corresponding labour absorption, creating a growth model structurally misaligned with employment creation. Markets fell as STT on futures rose to 0.05 percent, signalling investor scepticism toward capital-deepening strategies without employment elasticity.

Industrial Policy, Employment & Limits of 'Make in India':

In India, despite the post-2014 'Make in India' push, the industrial trajectory reveals an unfortunate decoupling between value addition and job creation.

While manufacturing GVA (Gross Value Added) surged by 11.89 percent in FY24, employment in the sector grew at less than half that pace, at 5.92 percent. Industrial policy has favoured capital-deepening over labour-intensive scaling, implying marginal efficiency of capital in creating jobs is declining.

This trajectory ignores the foundational macroeconomic lesson of the Great Depression, that economic stability hinges not just on output, but on employment.

As economist JM Keynes argued in his General Theory (1936), the state’s role is to use fiscal tools such as spending and tax cuts, specifically to stabilise labour markets against the collapse of demand. The Keynesian consensus held that investment is sustainable only when it creates jobs. By pursuing a CapEx-led strategy that raises production without proportionally expanding the workforce, India risks unlearning this history and creating assets without the income security necessary to sustain them.

The PLI scheme exemplifies this disconnect. PLI schemes have attracted actual investments exceeding Rs 2.0 lakh crore and generated exports worth Rs 8.20 lakh crore. Yet, this massive capital injection has created only 12.6 lakh jobs. The implied high capital cost per job highlights a structural flaw. The state is subsidising high-skill, capital-intensive sectors such as large-scale electronics and pharmaceuticals, while the labour-intensive MSME remains weakly integrated.

Employment Quality and Precarity

This is further complicated by poor absorption. Only 4.9 percent of youth (aged 15-29) have received formal vocational or technical training. The vast majority rely on informal training (21.2 percent) or lack technical skills altogether, creating a severe disconnect between the labour force and industry requirements.

This skill deficit manifests as low overall youth employability at just 56.3 percent, leading to structurally high youth unemployment at 10.2 percent. Distress is most acute among urban females, whose unemployment rate was 9 percent.

This, coupled with the manufacturing GVA figures, points to the near-zero employment elasticity of the modern manufacturing sector. The industrial recovery is being driven by productivity improvements and automation, not by the broad-based absorption of low-skilled labour.

Additionally, in FY 2024, the manufacturing GVA added over 10 lakh jobs, yet the organised segment employed only 1.9 crore individuals compared to 3.3 crore in the unorganised sector. Currently, self-employment dominates, followed by agriculture, at 55.8 percent of the workforce, while casual labour accounts for 18.9 percent.

The gig workforce has surged by 55 percent since FY21, reaching 120 lakh workers. The nationwide protests of Indian gig workers are representative of India’s fragile industrial ecosystem, where work is substantively informal, lacking protections, yet averages the same hours as formal workers. India’s CapEx-led strategy is inadvertently deepening precarity, succeeding in asset creation but failing to generate the stable, broad-based employment.

The Employment Paradox (2021-25)

(Source: CMIE)

The central paradox of India’s recent economic history is not insufficient capital, but misaligned investment. While there is a 6 percent rise in organised manufacturing employment, this growth is structurally skewed. Large factories now drive value but, in turn, shrink the labour-intensive MSME sector, which comprises 77 percent of units, yet absorbs only 21 percent of the workforce.

FY27's Budget CapEx of Rs 12.2 lakh crore doubles down on this trajectory, despite market turbulence signalling investor concern. Without labour-intensive recalibration, demographic potential risks fiscal exhaustion.

(Deepanshu Mohan is Professor of Economics and Dean, OP Jindal Global University. He is a Visiting Professor at the London School of Economics and an Academic Research Fellow, AMES, University of Oxford. Saksham Raj, Nagappan Arun and Inika Gupta are all research analysts with Centre for New Economics Studies, OP Jindal Global University. Nagappan Arun & Inika Gupta also contributed to this column.)