The Union Budget 2026–27 presents itself as a document of assurance. In a period marked by global uncertainty, trade fragmentation, and geopolitical stress, the Budget seeks to project calm: fiscal discipline is maintained, public investment is expanded, and long-term ambition is reaffirmed. Capital expenditure rises once again, industrial policy is strengthened, and macroeconomic stability is presented as India’s principal economic strength.
Yet behind this composure lies a deeper and unresolved tension. The Budget continues to rely on a growth strategy that expands output and capital formation faster than it expands secure employment. Aggregate stability is preserved, but income security remains fragile. This disconnect between growth and livelihoods, rather than any individual policy decision, defines the Budget's central limitation.
Growth without labour absorption
Public investment remains the core driver of the government’s growth strategy. Capital expenditure is budgeted at Rs 12.2 lakh crore in 2026–27, up from Rs 10.5 lakh crore in 2024–25 and nearly six times the level of a decade ago. Effective capital expenditure, including grants for asset creation, rises further to over Rs 17 lakh crore. Infrastructure, freight corridors, high-speed rail, logistics networks, urban economic regions, industrial clusters, ports and waterways dominate the fiscal imagination.
The assumption is that such investment will crowd in private capital, raise productivity, and generate employment downstream. What the Budget does not sufficiently address is the nature of the growth this strategy produces.
Infrastructure-led expansion in India has become increasingly capital-intensive and technologically mediated. While it improves connectivity and raises aggregate output, its capacity to absorb labour at scale remains limited. Much of the employment generated is indirect, temporary, or concentrated in narrow skill segments. The Budget treats employment as an eventual outcome of growth, rather than as a constraint that should shape the composition of growth itself.
This bias is reinforced by the manufacturing strategy. Strategic and frontier sectors, semiconductors, electronics, biopharmaceuticals, chemicals, rare earths, and capital goods receive extensive policy support, tax exemptions, and institutional backing. The Electronics Components Manufacturing Scheme alone sees its outlay raised to Rs 40,000 crore, while new schemes for biopharma and semiconductors are framed as pillars of long-term competitiveness. Legacy industrial clusters are to be revived, and MSMEs encouraged to scale up through a Rs 10,000 crore SME Growth Fund and expanded credit mechanisms.
These initiatives reflect industrial ambition, but they also deepen a capital-biased model of production. The sectors prioritised are globally competitive but weakly employment intensive. Even where traditionally labour-intensive sectors such as textiles are addressed, the emphasis remains on modernisation, automation, and productivity enhancement rather than on employment stability or wage growth. Manufacturing output is expected to rise, but labour absorption is left largely to assumption. So, growth, in other words, continues to outpace job creation.
Employment without security
This imbalance becomes clearer when employment outcomes are examined more closely. The Budget speaks repeatedly of jobs, particularly for youth and women, but avoids sustained engagement with the quality of work being generated. Recent employment expansion in India has been driven largely by self-employment, unpaid family labour, and casual work. Under prevailing statistical definitions, even minimal or irregular activity is recorded as employment. Participation rates rise, but earnings remain low, and work remains insecure.
The Budget’s emphasis on formalisation reinforces this ambiguity. Digital platforms, tax compliance, institutional credit, and payroll registrations are cited as evidence of labour market progress. Yet formalisation by itself does not guarantee stable employment. In many cases, it merely renders precarious work more visible. The share of wage employment with social security coverage remains limited, while underemployment, marked by low hours, irregular work, and stagnant wages, barely figures in policy assessment.
Women’s employment illustrates this gap particularly starkly. While female labour force participation has increased, much of this rise reflects distress-driven engagement in household enterprises, agriculture, or unpaid family work rather than expansion of well-paid wage employment. Participation is counted as success, even when economic autonomy and income security remain constrained.
Skilling initiatives and institutional committees feature prominently in the Budget. A High-Powered Committee on Education to Employment is proposed, alongside expanded training programmes across services, health, tourism, and creative industries. These interventions may improve employability at the margin, but they presuppose labour demand that the economy has not reliably generated. Skills cannot substitute for jobs that do not exist. Employability is prioritised over employment.
Welfare as compensation, not choice
It is against this backdrop that welfare assumes its true economic significance. Transfers continue, though with little prominence in the Budget narrative. Overall expenditure rises to Rs 53.4 lakh crore, but revenue expenditure alone exceeds Rs 41 lakh crore, while interest payments approach Rs 14 lakh crore, over one-fifth of total spending. Welfare, in this fiscal architecture, is managed cautiously rather than expanded decisively.
What is revealing, however, is not merely the level of allocation but its execution. An analysis of Budget Estimates and Revised Estimates for 2025–26 across major social sector schemes shows that most schemes did not fully spend even their budgeted allocations.
Of nearly twenty major social schemes, only a handful, most notably the free food programme and the rural employment scheme, saw spending exceed initial estimates. The majority witnessed under-execution, despite evident needs on the ground.
This pattern suggests that welfare restraint operates not only through budgeting but also through implementation. Even where social protection exists on paper, it is often fiscally and administratively compressed. The result is a system where income support functions more as residual relief than as a robust pillar of economic security.
These transfers persist not merely because of political considerations, but because labour markets fail to deliver stable incomes at scale. In an economy where informality dominates and wage employment remains limited, welfare substitutes for missing labour income. It stabilises consumption, mitigates risk, and prevents deeper social fragmentation. During downturns, employment guarantees act as demand stabilisers; food transfers prevent sharp collapses in household consumption.
By treating welfare largely as a fiscal obligation rather than as a structural response to labour market weakness, the Budget avoids confronting the underlying causes of dependence. Growth is expected to compensate for labour market shortcomings, even as evidence suggests that this compensation remains incomplete.
Fiscal discipline reinforces this approach. The fiscal deficit is projected to decline modestly to 4.3% of GDP, while the primary deficit falls to 0.7%. These numbers signal credibility and restraint, and they carry macroeconomic value in a volatile global environment. But discipline also has distributional consequences. With private consumption still fragile and real wages under pressure, fiscal restraint limits the state’s willingness to intervene more directly in income generation. Markets are stabilised through policy; households are expected to adjust.
The limits of resilience
The organising idea of the Budget is resilience—to global shocks, supply-chain disruptions, and technological change. Yet resilience cannot be assessed solely through fiscal ratios or investment flows. It must also be measured by households' and workers' capacity to absorb economic shocks without falling into insecurity.
An economy in which growth does not reliably produce secure employment is not fully resilient. It remains vulnerable beneath its stability. An economy in which welfare compensates for missing wages rather than complementing productive employment is not inclusive; it is compensatory.
The Union Budget 2026–27 is neither careless nor incoherent. It reflects continuity in policy and confidence in direction. Its limitation lies elsewhere: in the continued separation of growth from livelihoods. India’s challenge today is not a shortage of economic activity, but a shortage of work that pays reliably and endures. Until this gap is addressed more directly, economic stability will continue to coexist with social insecurity, and growth will remain robust in aggregate but incomplete in lived experience.
Ubaid Mushtaq is an Assistant Professor in the Department of Economics, SRM University, AP.
Views expressed are the author’s own.