This piece analyses the Union Budget 2025-26 for its employment generating impact from both a macro-economic as well as a micro-economic perspective. It does it by examining two sets of proposals: the first is the flagship personal income tax (PIT) slabs revision; and second, the ‘schemes’ announced in the classic government way for translating budget allocations to outcomes.

We start by rejecting the Ministry of Finance’s Economic Survey 2025-26 claim about rising Labour Force Participation Rates (LFPR) and Worker Population Ratio (WPR), and falling unemployment rate (UR). The facts are as follows. In 2017-18, India reached the highest unemployment rate in the history of labour surveys in India. The economy slowed over nine quarters from 2017 to early 2020, and then COVID sent unemployment shooting up, as the economy contracted (by twice as much as the global economy in FY2021). Hence 80 million workers went back to agriculture, reversing the exit from agriculture between 2004 and 2019. Thus, LFPR has risen, as has WPR, and UR fell, but only because women also joined agriculture, as unpaid family labour (40 million additional UFL). That is what the KLEMS researchers, and the Prime Minister have called eight crore new jobs in four years (2020-24)! The Economic Survey admits real wages have not risen for 80% of workers in the last five years, but still claims jobs have grown – a rather contradictory conclusion.

Given this background, one would have expected that economic policy generally, and budgets post-COVID in particular, would be designed to create non-farm jobs – given that aggregate demand collapsed in the economy – as macro-economic aggregates have shown. However, the Finance Minister’s answer in the Budget 25-26 has been to give personal income tax breaks to the middle class, hoping to revive demand. Given that the middle class itself has had to dissave to maintain consumption, and consumption has barely grown, the tax breaks to 30 million PIT payers (in a workforce of 600 million) are hardly likely to suddenly turn around aggregate demand, let alone encourage the growth of private investment – and hence generate growth or jobs.

Meanwhile, the schemes in Budget 25-26 for so-called employment hardly seem promising in respect of non-farm job creation. The first scheme is the “enhancement of credit availability with guarantee cover”. This is supposed to improve access to credit. The credit guarantee cover will be enhanced:

a) For micro and small enterprises, from ₹5 crore to ₹10 crore, leading to additional credit of ₹1.5 lakh crore in the next 5 years;

b) For start-ups, from ₹10 crore to ₹20 crore, with the guarantee fee being moderated to 1 per cent for loans in 27 focus sectors important for Atmanirbhar Bharat; and

c) For well-run exporter MSMEs, for term loans up to ₹20 crore.

The second scheme is to promote employment and entrepreneurship opportunities in labour-intensive sectors. Thus, the government will undertake focus product scheme for footwear and leather sectors. This will support design capacity, component manufacturing, and machinery required for production of non-leather quality footwear, besides the support for leather footwear and products. The scheme is expected to facilitate employment for 22 lakh persons, generate turnover of ₹4 lakh crore and exports of over ₹1.1 lakh crore.

Finally, there is a scheme for tourism for employment-led growth. Thus, top 50 tourist destination sites in the country will be developed in partnership with the States through a challenge mode. Land for building key infrastructure will have to be provided by the States. Hotels in those destinations will be included in infrastructure.

The following measures will be taken for facilitating employment-led growth – by organising intensive skill-development programmes for youth, including in Institutes of Hospitality Management; and providing MUDRA loans for homestays.

For a country that adds 6 million-7 million new job seekers each year; a country that has 46% of its workforce now in agriculture (who should exit farming), a country that has 100 million youth “Not in Education, Employment or Training”, and about 25 million unemployed – these three budget schemes don’t seem to address the challenges of job creation.

(Santosh Mehrotra was professor of economics at Jawaharlal Nehru University, and is a visiting professor at the National Research University Higher School of Economics, Moscow.