The Union Budget 2025-26 was expected to chart a bold course for economic recovery, particularly in employment generation and demand stimulation. Instead, it appears to be a continuation of policies that have failed to address the core challenges facing India’s work force and consumers. While capital expenditure has increased to 4.2 per cent of GDP, tax cuts for the middle class reduce government revenues, limiting the fiscal space needed for meaningful interventions. One of the most pressing concerns in the economy remains job creation.

The official claims of an improving labour market obscure a more uncomfortable reality ~ much of the employment growth is in agriculture, driven by workers returning to farms due to a lack of non-farm opportunities. This is not a sign of a healthy economy but a regression that reverses nearly two decades of structural transformation. Women, in particular, have entered the labour force in greater numbers, but largely as unpaid family workers rather than in formal, productive jobs. The budget does propose schemes to boost employment, such as increased credit guarantees for small businesses and incentives for labour intensive sectors like footwear, leather, and tourism. However, these are incremental measures that fail to address the scale of the unemployment crisis. India needs a systemic push for formal sector jobs, especially in manufacturing and services, but the budget lacks a comprehensive roadmap to achieve this.

Advertisement

The government’s strategy of cutting personal income tax to boost consumption rests on shaky assumptions. In a country with over 600 million workers, such tax payers constitute a small fraction ~ about 30 million. Providing them with tax relief is unlikely to generate a broad-based demand surge. Moreover, many middle-class families are already under financial strain. Having dipped into savings during the pandemic and facing rising living costs, a significant portion of this demographic is still repaying personal loans and credit card debt. Tax cuts may offer momentary relief, but they are unlikely to translate into sustained consumer spending. Meanwhile, private investment ~ another critical driver of growth ~ remains subdued. Businesses make investment decisions based on demand visibility and policy stability, not tax incentives alone. Without strong consumer demand, private capital is unlikely to step in and create jobs at the necessary scale.

The budget’s capital expenditure increase is a positive step, but it cannot be the sole engine of growth. Infrastructure spending, while important, does not immediately translate into large-scale employment, nor does it directly stimulate household consumption. A more balanced approach, combining targeted employment programmes with policies to enhance purchasing power, is needed. For an economy that adds 6-7 million new job seekers annually, this budget does little to address their aspirations. Without stronger demand and job creation, economic growth will remain uneven, and the middle class ~ already financially stretched ~ will find little respite.