While this is a big advantage for the economy, it also presents an equally big challenge to create enough jobs to tap into the country’s demographic dividend. The 2023-24 Economic Survey highlighted that India needs to create around 8 million non-farm jobs annually until 2030 to absorb its growing working-age population. The upcoming budget should explore ways to create jobs sustainably and enable the economy to move onto a higher growth trajectory.
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Budget 2026 support for agriculture sector
A look at sector-wise employment data shows it is highly skewed. Agriculture, which accounts for only 15% of India’s GVA, employs around 46% of the workforce. This highlights disguised unemployment in the agriculture sector and the need to shift the workforce from agriculture to other sectors.
In this regard, further support for agri-ancillary industries (such as horticulture and floriculture) and the agri-processing industry will help absorb the rural workforce more productively. This will require developing adequate infrastructure for the storage and transportation of food crops. There should also be a continued focus on skilling the rural workforce to enable absorption in other sectors.
In the manufacturing sector, even with schemes like ELIs (employment-linked incentive schemes) and PLIs (Production Linked Incentive Scheme), the share of the workforce employed is at a low of 11.4%, down marginally from 12.1% in FY18. The move towards automation in the manufacturing sector will make it even more challenging for the sector to create jobs.
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Budget 2026 needs to bolster manufacturing & jobs
To bolster the manufacturing sector and create jobs, the Government should identify a few sectors with high potential for export and employment generation, like electronics, pharmaceuticals, auto and auto-ancillary, textiles, footwear and create the whole ecosystem for attracting investment in these sectors. This could take the form of expanding existing industrial clusters and creating new, competitive clusters with complete infrastructure and backwards and forward linkages.
Corporations should also be incentivised to establish skilling facilities or work closely with skilling institutes in these clusters to enable customised skilling and subsequent workforce absorption within the clusters. Reducing regulatory hurdles and improving the EoDB will also go a long way toward enabling higher FDI in these sectors.
MSMEs are a large employment generator. Hence, a specific focus on enabling growth in MSMEs will also boost job creation. While many MSMEs have been beneficiaries of the PLI scheme, the government can also look at a PLI scheme designed specifically for MSMEs. This will help the MSME sector scale up and create a large number of jobs.
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Union Budget 2026 steps for services sector
While the service sector accounts for more than 50% of India’s GVA, it employs around 30% of the labour force. Employment in this sector is dominated by trade and transport, which have relatively lower wages, while segments such as Information Technology and Finance still have a relatively small employment base. However, in terms of employment elasticity, segments such as ICT, finance, and healthcare exhibit relatively higher elasticity (according to NITI Aayog’s latest report on India’s service sector).
The government should focus on driving growth in such segments with strong employment-generating capacity. In many of these service sectors, India also enjoys a strong export performance. This is specifically important at a time when global services trade is holding up well, even while goods export growth is flattening.
Specifically in segments such as IT and ITES, India has the benefit of a large STEM population, but with AI gaining prominence, there are concerns about job creation in this sector. In the last few years, we have already seen weak hiring and wage growth in the IT sector. As the AI race accelerates, India must focus on R&D in this area to drive progress up the value chain.
What India Budget 2026 shouldn’t miss
While focusing on job creation, the budget should not lose sight of the objectives of formalisation and social protection for a large number of jobs in the economy, including self-employed, gig workers, domestic workers, and MSMEs. The simplification of labour codes is a step in the right direction toward formalisation and social security for workers, while also providing more flexibility to employers.
Large-scale job creation is a complex endeavour that cannot be resolved with a magic wand. The government should identify high-growth sectors with job-creating potential and support them with targeted interventions. India is currently in a sweet spot, with high growth and healthy macro fundamentals. This is an apt time for the government to focus on the structural issue of job creation. Only then can India’s dream of Viksit Bharat come true.