Visible Progress, Invisible Exclusion

UPSC Syllabus: Gs Paper 3- Indian economy

Introduction

Budget 2026–27 marks a clear shift in India’s fiscal strategy. The focus has moved from crisis support to a borrowing-led, capex-driven growth model. High public investment and a controlled fiscal deficit project confidence and long-term intent. Infrastructure and MSMEs are now treated as permanent growth pillars. However, behind this visible progress lies a deeper concern. The link between rising capital investment and employment generation is weakening, creating growth without broad labour inclusion.

Capex as a Permanent Growth Doctrine

1. Shift from counter-cyclical to core strategy: Earlier, capital expenditure expanded only when revenues allowed and was cut during fiscal stress. After the pandemic, capex became the main pillar of fiscal policy and no longer a temporary tool.
2. Scale and fiscal commitment: The fiscal deficit is guided to 4.3% of GDP, while public capex is raised to ₹12.2 lakh crore. This signals a borrowing-heavy approach to finance long-term growth.
3. Structural role of infrastructure and MSMEs: Public infrastructure and MSME-led manufacturing are no longer framed as short-term stimulus. They are positioned as the structural backbone of the economy and the basis of the “Viksit Bharat” vision.
4. Underlying growth assumption: The strategy rests on the belief that public investment will crowd in private investment, raise productivity, and generate employment over time.

Breakdown in the Growth–Employment Transmission

1. GDP growth without labour absorption: Capital formation has succeeded in driving headline GDP growth. However, labour absorption has stalled, weakening the link between growth and jobs.
2. Persistent youth exclusion: The youth NEET rate for ages 15–29 remains between 23% and 25%. Nearly one in four young Indians stays outside education, employment, or training even as public investment rises.
3. Employment as a residual outcome: Employment is no longer treated as a variable that must be directly engineered. It is increasingly seen as an eventual by-product of growth.
4. Manufacturing-led growth with weak jobs link: Expansion in MSMEs, semiconductors, and biopharma has not translated into proportionate employment gains, making the growth–jobs mechanism fragile.

Sectoral Signals of a Structural Reversal

1. Construction losing job intensity: Construction, the sector most directly supported by infrastructure spending, shows declining employment elasticity despite record public investment.
2. Elasticity decline despite higher spending: Employment elasticity in construction fell from 0.59 in 2011–12 to 2019–20 to 0.42 in 2021–22 to 2023–24. Each unit of capex now creates fewer jobs than before.
3. Agriculture reabsorbing labour: Instead of releasing labour, agriculture is pulling workers back. Employment elasticity rose sharply from 0.04 to 1.51 across the same periods.
4. Distress-driven fallback: This reabsorption reflects distress rather than productivity gains. Workers return to low-productivity agriculture due to lack of alternatives.
5. Structural U-turn: India is expanding modern physical assets while its workforce moves back toward subsistence sectors, reversing expected development patterns.

Growth Without Absorption

1. Capital-intensive production bias: The current capex-led model favours capital intensity. Infrastructure supports efficiency but reduces the need for labour.
2. Widening productivity–wage gap: Net value added per worker has increased sharply, while average emoluments remain much lower. Efficiency gains flow mainly as profits, not wages.
3. Industrial structure constraints: Most factories remain small, employ fewer than 100 workers, and contribute little to output. They struggle to scale or compete.
4. Large firms dominate value creation: Big firms integrate better into new logistics and infrastructure networks. They drive output growth but remain relatively labour light.
5. Two-layer economy: A capital-intensive upper layer drives GDP growth with limited jobs. A vast lower layer absorbs labour through informality and self-employment with low productivity.

Conclusion

Fiscal strategy and labour outcomes together show a silent shift in priorities. Growth advances through capital, automation, and productivity rather than employment. Inclusion now depends on skills, location, and adaptability. Those outside this profile move into informality or agriculture. The economy continues to grow, but it no longer requires broad-based labour absorption.

Question for practice:

Examine how India’s post-pandemic capex-led growth strategy has weakened the growth–employment linkage, leading to visible economic progress alongside rising labour exclusion.

Source: The Hindu