Employment and the Budget’s strategic choices

The Union Budget 2026 does have employment as one element of its growth strategy, though the FM’s budget speech barely mentioned jobs. Amid global uncertainty, the emphasis on scaling up strategic and frontier sectors, alongside labour-intensive industries, reflects an attempt to advance economic growth, strategic security and self-reliance, while expanding employment.

Union Budget 2026: Follow the highlights from February 1, 2026

The proposed BioPharma SHAKTI initiative, aimed at creating an ecosystem for domestic production of biologics and biosimilars, seeks to deepen India’s manufacturing capabilities in a high-value, knowledge-intensive segment. Building on India’s established role as a global supplier of generic medicines, the initiative has the potential to expand exports, particularly to the Global South, while creating skilled employment across research, clinical trials, manufacturing, quality control and regulatory functions, linking employment generation with export-led growth.

Building on the India Semiconductor Mission 1.0, the Budget proposes India Semiconductor Mission 2.0, expanding the focus from fabrication to domestic production of semiconductor equipment and materials, development of full-stack Indian intellectual property, and stronger supply chains. In a context of heightened geopolitical volatility and a global pax-silica shaping semiconductor value chains, strengthening domestic capability assumes importance for economic competitiveness and reducing strategic dependence, while also supporting the creation of high-value employment within the semiconductor ecosystem.

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The effectiveness of technology-intensive manufacturing will also depend on secure access to critical minerals, particularly rare earth elements that underpin electronics, clean energy and advanced manufacturing. Following the launch of a Scheme for Rare Earth Permanent Magnets in November 2025, the Budget proposes the creation of dedicated Rare Earth Corridors to strengthen domestic supply chains by integrating mining, processing and manufacturing, with positive implications for industrial growth, employment and strategic resilience.

The Electronics Components Manufacturing Scheme, launched in April 2025, has attracted strong investor interest, indicating scope for expanding domestic component production. Building on this momentum, the Budget seeks to scale up electronics manufacturing, reduce import dependence and advance industrial and technological development, and formal employment.

Strengthening capital goods capability is critical for improving productivity and quality across manufacturing sectors. The Budget proposes the establishment of Hi-Tech Tool Rooms by Central Public Sector Enterprises as digitally enabled, automated hubs for the design, testing and large-scale production of high-precision components. By lowering costs and improving access to advanced tooling, these facilities can enhance manufacturing competitiveness while supporting skilled employment.

Alongside technology and capital-intensive sectors, the Budget emphasises labour-intensive industries such as textiles, which remain critical for large-scale employment. The integrated textile programme combines fibre self-reliance, cluster modernisation, support for handlooms and handicrafts, and a push towards sustainable and competitive textiles. Proposals for Mega Textile Parks and the Mahatma Gandhi Gram Swaraj initiative aim to strengthen value addition, market access and skills, expanding labour-intensive employment and rural self-employment opportunities, particularly for weavers, artisans and youth.

The renewed emphasis on cluster-level development is a much-awaited policy shift, given the role of industrial clusters in driving industrial growth and employment. Reviving 200 legacy clusters through infrastructure and technology upgradation seeks to improve competitiveness and productivity, while the parallel focus on creating “Champion” micro, small and medium enterprises (MSMEs) aims to support firm growth and employment within these ecosystems.

Adequate access to finance remains critical for MSMEs facing persistent liquidity constraints. Measures to deepen the Trade Receivables Discounting System include wider adoption for public sector procurement, credit guarantee support, closer integration with government purchasing platforms and the development of secondary markets. Together, these steps aim to improve payment discipline and lower financing costs, hence support enterprise growth and potentially employment expansion.

Infrastructure continues to underpin economic development, industrialisation and employment. New financing instruments such as Real Estate Investment Trusts are being used to monetise public assets and unlock resources for investment, while the expansion of dedicated freight corridors seeks to improve logistics efficiency and industrial connectivity. Sustained public capital expenditure remains central to infrastructure-led growth and employment.

Cities are India’s engines of growth and opportunity, enabling the shift of labour from low-productivity agriculture to more productive non-farm activities. The focus on Tier II and Tier III cities and smaller urban centres could strengthen their role as destinations for migration-led job creation. Mapping City Economic Regions around local growth drivers has the potential to deepen agglomeration economies, absorb migrant labour and expand non-farm employment, with positive spillovers for rural incomes. Improved urban connectivity is a key enabler of this transition. High-speed rail corridors could facilitate labour mobility, integrate regional labour markets and expand access to urban employment, supporting structural transformation by linking rural workers to city-based jobs.

India will wait to see how many of these promises actually generate all the positive spillovers claimed for them.

(Santosh Mehrotra was Prof of Economics at the Centre for Labour, JNU, and Director General of the Planning Commission’s research institute; Rakesh Ranjan is a labour economist, a JNU PhD, and is with the Institute for International Migration, Trivandrum.)

Published – February 01, 2026 08:48 pm IST