However, Budget 2026 need not be a dramatic reset or a headline-grabbing departure from fiscal prudence. Its real opportunity lies elsewhere: in quiet repair—strengthening public finances while reshaping the economy’s growth engine to be more durable, inclusive and resilient to shocks.
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Union Budget 2026 and the limits of tax-led consumption
Recent policy choices have already delivered a near-term boost. The government’s double booster—GST rationalisation and income-tax relief—has nudged households to consume more, helping demand hold up in an uncertain global environment. But consumption fuelled by tax relief has natural limits.
A sustained rise in purchasing power ultimately depends on a sustained rise in per capita incomes. And that, in turn, depends on one thing above all else: jobs.
Budget challenge as India’s jobs puzzle comes into focus
This is where India’s demographic moment comes sharply into focus. India’s working-age population is estimated at about 902 million as of 2023-24. Of these, roughly 634 million are either employed or actively seeking work, forming the effective labour force. Yet nearly half of this workforce remains tied to agriculture.
What is striking—and counter to expectations—is that since 2018, job creation in the farm sector has outpaced non-farm activities. For an economy aspiring for higher per-capita income and productivity, this is a signal that policy needs to focus on reversing this trend.Between FY18 and FY24, non-farm employment did rise by an estimated 76 million—about 12.6 million jobs a year. But the composition of these jobs matters. Construction and services have done the heavy lifting, while industrial sectors like mining and manufacturing have recorded a moderate performance.
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India Budget dilemma as infrastructure jobs rise but manufacturing lags
The government’s infrastructure push has helped spur construction jobs – adding almost 20 million new workers between FY18 and FY24, with the sector now employing more people than manufacturing. This is both a success and a warning. Infrastructure-led growth can absorb labour quickly, but it cannot be the sole pillar of a long-term employment strategy. Manufacturing must play a bigger role if India is to create stable, higher-paying jobs at scale.
Within manufacturing, the picture is mixed. Traditional labour-intensive sectors such as textiles, food processing and wood products still account for a large share of employment, but their job growth has been modest. On the other hand, faster-growing industries—electronics, electrical equipment, chemicals, pharmaceuticals and automobiles—have shown greater dynamism.
Government schemes that link incentives to job creation in manufacturing can be sharpened to further boost employment. For instance, under the current employment-linked framework, incentives are capped at relatively modest salary levels. In a high-cost urban environment, raising this cap would make formal manufacturing jobs more attractive for both firms and workers, without undermining fiscal discipline.
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Union Budget 2026 opportunity to turn MSMEs into a job engine
If manufacturing is one pillar, MSMEs are the foundation. They now account for nearly half of manufacturing employment, up from about 44 per cent just a few years ago, and have generated close to 30 per cent of new non-farm jobs over the last 7 years.
In many ways, MSMEs are India’s employment flywheel. While investment-based incentives such as production-linked schemes have successfully catalysed capital spending, Budget 2026 could complement them by directly rewarding incremental employment creation by MSMEs. Tax incentives linked explicitly to net new jobs—across both manufacturing and services—would be a powerful way to turn job creation into a self-reinforcing cycle of income, consumption and growth.
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Budget 2026 and the shift towards services-led employment
Services, meanwhile, are quietly becoming India’s largest employer, after agriculture. Trade and services together employ well over 180 million people, with wholesale and retail trade alone accounting for more than a third of this total. Sectors such as hospitality, communications, finance and insurance have seen strong job growth.
The standout has been communications and digital services, where employment has expanded rapidly, driven by computer programming, web design, consultancy and allied activities. Recent labour reforms that encourage formalisation, social security and minimum wages are timely and could further support this transition.
Global trends add urgency to this shift. Protectionism, volatile trade policies, offshoring and the rapid rise of the gig economy are reshaping how and where jobs are created. India has an opportunity to position itself as a hub for the next generation of services and knowledge work. That requires a sharper focus on skills. Budget 2026 can lay the groundwork by scaling up skilling programmes aligned with digital and AI-driven roles, and by ensuring that employment-linked incentives encourage the creation of jobs that are resilient to technological disruption.
India Budget 2026 and the race against demographics
Demographics make this challenge time bound. India’s youth population is expected to peak around 2025 and then gradually decline. However, India’s working-age population continues to expand until about 2041. The next decade is therefore critical. It is the window in which India must convert its demographic potential into economic output.
Women’s participation in the workforce is central to this effort. Female labour force participation has risen impressively in recent years to 40.3 percent as of 2024, but much of this increase has come from agriculture. In non-farm sectors, women remain underrepresented. Budget 2026 can address this imbalance through targeted incentives for hiring women in non-farm jobs, expanding access to STEM education for girls from rural areas, easing education finance for female students, and strengthening support for women-led enterprises.
Seen in this light, Budget 2026 does not need to chase grand gestures. Its impact will come from careful, targeted choices that align fiscal consolidation with job-rich growth. If it succeeds in quietly repairing the labour market and harnessing India’s demographic scale, the payoff will be anything but quiet—a more productive economy, stronger incomes and a growth story built to last.