The Employment Imperative, Why India’s 2026 Budget Must Engineer a Competitive Economy

The Employment Imperative, Why India’s 2026 Budget Must Engineer a Competitive Economy

As the Government of India’s October communiqué astutely observed, “employment carries both economic and social weight.” It is the linchpin that connects economic growth to social stability, individual dignity to national productivity, and domestic consumption to sustained GDP expansion. For India, this weight is amplified by a unique demographic reality: a vast, young, and growing working-age population, representing what has long been hailed as an unparalleled “demographic dividend.” Yet, as the nation approaches the 2026 Union Budget, this dividend feels more like a pressing imperative—and a formidable risk. The central theme of the upcoming budget must be nothing less than a strategic, all-of-government offensive to translate India’s human potential into meaningful, productive, and well-paying employment. The evidence is clear: piecemeal schemes are insufficient. The only durable solution lies in fostering a fundamentally more competitive, dynamic, and globally integrated economy.

The Paradox of Potential: A Dividend Deferred

India’s demographic profile is its most valuable asset. With a median age under 30 and over 7-8 million young individuals entering the workforce annually, the nation possesses an engine of growth that aging economies can only envy. This “peak dividend” window, optima in the early 2010s, is now in its later stages, with the cohort beginning to age. We have, as the article notes, perhaps two decades to harness its residual benefit before the dependency ratio begins to climb. The urgency is palpable.

However, this potential stands in stark contrast to on-ground realities. The nation is mired in a paradoxical crisis: “jobless growth” alongside a severe “skill gap.” While headline GDP figures show robust expansion, the translation of this growth into broad-based, quality employment remains faltering. The economy is rapidly digitizing, with artificial intelligence (AI), green tech, and advanced services leading the future of work. Yet, the labor market is characterized by a profound misalignment; millions possess education and skills ill-suited for these new-age roles, while low-productivity sectors like subsistence agriculture continue to absorb labor as a last resort. This mismatch means the dividend is not being reaped but risks turning into a demographic liability—a mass of underemployed or unemployable youth becoming a social and economic burden rather than an asset.

Decoding the Data: Formalization vs. Quality

Official statistics paint a picture of robust employment growth, with figures rising from 475 million in 2017-18 to over 643 million in 2023-24. The rapid addition of millions of net subscribers to the Employees’ Provident Fund Organisation (EPFO) is a heartening sign of formalization. However, a deeper dive reveals critical nuances that the Budget must address.

First, official employment data includes categories like “self-employment,” which often masks disguised unemployment—individuals eking out a meager living in low-return ventures for lack of better alternatives. Similarly, rising employment in the farm sector, during a phase of intended structural transformation away from agriculture, signals distress rather than progress.

Second, the nature of new employment raises quality concerns. The phenomenal rise of the gig workforce, projected to grow from 10 million to 23.5 million by 2030, offers flexibility and immediate income. Yet, it is often characterized by job insecurity, long hours, incomes below minimum thresholds, and a lack of social security—a precarious existence rather than a pathway to prosperity. In organized manufacturing, nearly 42% of the workforce is on contract, lacking the stability and benefits of permanent employment.

Third, alternative surveys like those by the Centre for Monitoring Indian Economy (CMIE) paint a grimmer picture, estimating unemployment rates significantly higher than official figures. While methodological differences exist, this divergence underscores the perception of a gap between economic activity and adequate job creation. The sentiment of anxiety among the educated youth is real and cannot be ignored.

Beyond Schemes: The Imperative of a Competition-Driven Economy

The government has launched numerous employment-linked schemes over the past decade, from skill missions to production-linked incentives (PLIs). These have had localized impacts but have not catalyzed the economy-wide job boom required. The 2026 Budget must recognize that designing yet another scheme is akin to rearranging deck chairs on the Titanic. The core challenge is structural.

The “key solution,” as the article underscores, is to make the Indian economy structurally more competition-driven. A competitive economy is a productive, innovative, and job-creating economy. It forces firms to innovate, improve efficiency, and chase new markets, all of which drive demand for talent. It attracts investment, both domestic and foreign, that seeks productive deployment. It empowers consumers with choice and quality. Ultimately, competition is the most powerful job-creation engine known to economics.

Therefore, the Budget must be a vehicle to unleash competition across sectors. This involves a multi-pronged strategy:

1. Drastically Ease the Cost and Complexity of Doing Business:
While rankings have improved, ground-level obstacles for small and medium enterprises (SMEs)—the nation’s largest employers—remain steep. The Budget must:

• Simplify and Rationalize Tax Regimes: Move towards simpler, predictable, and less litigious direct and indirect tax structures. Further ease GST compliance for MSMEs.

• Reduce Regulatory Cholesterol: Launch a comprehensive review of central and state-level licenses, permits, and inspections, replacing them with technology-driven, trust-based regulatory frameworks.

• Ensure Speedy Enforcement of Contracts: Allocate significant resources to modernize commercial courts and expedite dispute resolution. Time is money for job-creating businesses.

2. Catalyze Labor-Intensive Export Sectors:
India’s share in global merchandise trade remains modest. To create millions of jobs, we must become a manufacturing and services export powerhouse.

• Strategic Trade Logistics: Budget for world-class, integrated port, road, and rail infrastructure dedicated to export corridors. Time-to-port and cost-to-port must become competitive with Vietnam and Bangladesh.

• Remission of All Levies: Ensure exporters are not burdened by any domestic taxes or levies on their products, making them truly competitive on price.

• Focus on Employment-Elastic Sectors: While supporting high-tech PLI sectors, the Budget must also champion policies for job-rich sectors like textiles & apparel, leather & footwear, food processing, electronics assembly, and tourism. These sectors can absorb semi-skilled labor en masse.

3. Democratize Access to Capital and Technology:
Small firms struggle to access affordable credit and modern technology.

• Revamp Credit Guarantee Schemes: Make them more accessible and reduce the risk-aversion of banks towards MSME lending through innovative fintech partnerships.

• Create a ‘Technology Adoption Fund’: Subsidize the cost for SMEs to adopt digital tools, cloud computing, and automation, making them more productive and scalable.

• Incentivize R&D and Innovation: Expand tax benefits for R&D expenditure, especially for collaborative research between industry and academic institutions on solving India-specific problems.

4. Reforming Labor Laws for Flexibility and Security:
The new labour codes need effective implementation. The Budget should support the transition by funding:

• A National Reskilling & Portability Infrastructure: As jobs change, workers need to reskill. Link all skill databases with the National Career Service portal. Promote ESOP-like models for funding individual skill accounts.

• Universal Social Security for All Workers: Begin by creating a budgetary framework to extend health, accident, and old-age security to gig, platform, and informal sector workers, decoupling benefits from a specific employer. This provides a safety net in a dynamic labor market.

5. Aligning Education with Employability:
The skill gap is a national emergency. The Budget must treat it as such.

• Outcome-Linked Funding for Higher Education: Tie a portion of university grants to graduate employment and entrepreneurship outcomes.

• Industry-Apprenticeship Corridors: Mandate and incentivize large firms to take on a percentage of their workforce as apprentices, creating a direct pipeline from education to employment.

• National Digital University & Platform: Massively scale up online, affordable, and reputable degree and certification programs in AI, data analytics, cybersecurity, and advanced manufacturing.

Conclusion: From Demographic Data to Human Destiny

The 2026 Budget is more than an accounting exercise; it is a statement of national priorities. Placing employment at its center is a socioeconomic and political necessity. However, achieving this requires moving beyond symptomatic treatment through schemes to attacking the root cause: an economy that is not competitive enough to generate the scale and quality of jobs needed.

A competitive economy is not a laissez-faire free-for-all. It requires an enabling, strategic, and investment-oriented state that builds infrastructure, ensures rule of law, fosters innovation, and empowers its workforce. It means making tough choices to dismantle vested interests that stifle competition. It demands a cohesive vision where industrial policy, trade policy, education policy, and fiscal policy are all aligned towards making Indian firms and Indian workers the most competitive in the world.

The alternative—a continuation of the status quo—risks squandering the century’s greatest economic opportunity. The demographic dividend is not a perpetual guarantee; it is a fleeting chance. The 2026 Budget must be the blueprint that seizes this chance, transforming India’s youthful population from a statistic of potential into an army of productive, prosperous, and globally competitive creators. The time for incrementalism is over; the moment for structural transformation is now.

Q&A: Employment and the 2026 Budget

Q1: What is the core argument for making employment the central theme of the 2026 Budget?
A1: The core argument is twofold: economic imperative and social urgency. Economically, India’s high growth must translate into broad-based job creation to sustain itself. Employment fuels consumption, which drives further investment and growth in a virtuous cycle. Without adequate jobs, growth becomes exclusionary and unstable. Socially, with 7-8 million youth entering the workforce yearly, the failure to create sufficient decent employment turns the celebrated “demographic dividend” into a “demographic disaster”—leading to social unrest, wasted potential, and a loss of global competitiveness. The Budget is the government’s primary policy vehicle; focusing it on employment signals a strategic shift from managing growth to managing the human outcomes of that growth.

Q2: The article mentions a paradox: “jobless growth” alongside a “skill gap.” How do these two issues interconnect?
A2: They are two sides of the same coin, creating a vicious cycle. “Jobless growth” occurs when economic expansion, often driven by capital-intensive sectors (like high-tech or automated manufacturing), does not generate proportional new employment, especially for the semi-skilled masses. Simultaneously, the “skill gap” means the workforce lacks the specific competencies (in digital literacy, AI, advanced manufacturing, etc.) that new-age, growing industries demand. Therefore, even where high-quality jobs are being created, a large section of the population is unqualified for them. This mismatch means companies can’t find the talent they need (constraining their growth), while millions of job seekers find no suitable openings, resulting in underemployment in low-productivity sectors. The economy grows, but its employment elasticity remains low.

Q3: Official data shows strong EPFO subscriber growth, but critics point to the rise of gig and contract work. What does this reveal about the quality of employment being generated?
A3: This divergence reveals a trend towards the “formalization of informality.” Rising EPFO numbers indicate more workers are being brought under some formal social security umbrella, which is positive. However, a significant portion of this formalization is happening through contract labor and gig platforms. This type of employment often lacks:

• Job Security: Tenure is short-term or project-based.

• Income Security: Wages can be volatile and often fall below minimum wage standards when calculated per hour.

• Benefits: Access to health insurance, paid leave, gratuity, or severance pay is limited or non-existent.

• Career Progression: There are few pathways for skill advancement or vertical mobility.
  Thus, while the quantity of formal jobs may be rising, the quality—in terms of stability, security, and dignity—remains a major concern. The economy is creating more “jobs,” but not enough “careers” or “livelihoods.”

Q4: Why is fostering a “competition-driven economy” presented as the key solution, rather than more government job schemes?
A4: Government job schemes (like wage employment programs) are typically palliative or targeted; they provide relief but do not create sustainable, productivity-led job growth at scale. A “competition-driven economy” attacks the problem at its source by stimulating the private sector—which creates over 90% of jobs—to expand and hire. Competition forces firms to innovate, improve efficiency, and explore new markets, all activities that require hiring talent. It attracts investment seeking productive opportunities. Unlike a scheme, which has a fixed budget and scope, a competitive market ecosystem is a self-sustaining job-creation engine. The government’s role shifts from being a direct employer-of-last-resort to being an enabler that removes barriers (regulatory, financial, infrastructural) for businesses to compete and grow, thereby multiplying employment opportunities organically and efficiently.

Q5: What specific, actionable measures can the 2026 Budget take to make the economy more competition-driven and employment-friendly?
A5: The Budget can act on several fronts:

• For Ease of Doing Business: Allocate funds for a “Single Window 2.0” that uses AI to clear all central and state permits for MSMEs within 72 hours. Introduce a “Tourism & Hospitality Revival Fund” with tax holidays to revive this labor-intensive sector.

• For Export Competitiveness: Create a “National Export Infrastructure Mission” with dedicated budgetary outlay for last-mile rail/road connectivity to ports. Announce a “Remission of All Levies” scheme for key job-creating export sectors like textiles and toys.

• For Access to Capital: Launch a “Bharat Startup & MSME Credit Guarantee Trust” with a corpus 5x the current size, underwriting loans for young companies. Introduce tax incentives for “Patient Capital” funds that invest in startups and SMEs for over 7 years.

• For Skill Alignment: Pilot a “Skills-Wallet” for every adult, with an annual government credit of ₹5,000 for approved courses, redeemable at any certified platform. Mandate and subsidize “Apprentice-CEO” programs where every large corporate must have 5% of its workforce as paid apprentices.

• For Social Security in a Dynamic Market: Begin the framework for a “Gig Workers’ Welfare Fund” financed by a 1-2% platform levy, contributing to portable health and pension accounts.