Visible progress, invisible exclusion Premium

India is perfecting a growth model designed to function with clinical efficiency, while quietly leaving its vast labour force behind

Budget 2026-27 signals a transition away from pandemic-era crisis management to what is now a borrowing-heavy doctrine for financing growth and capital expenditure (capex) spending.

By guiding fiscal deficit to 4.3% of GDP and scaling public capital expenditure to ₹12.2 lakh crore, the government aims to project a broader infra-capex enabled vision of a ‘Viksit Bharat’ while giving a necessary push to MSMEs in manufacturing this time. That public infrastructure and MSME growth are no longer framed as areas of temporary stimulus, but part of the structural backbone of the economy is reassuring.

And yet, beneath the veneer of macro-economic stability, the fiscal math, as projected by the Finance Minister, masks a more precarious reality. As manufacturing scales in strategic frontiers like MSMEs, semiconductors, and biopharma, the mechanism connecting this massive capital expansion to actual employment outcomes has become increasingly tenuous. While capital formation successfully drives headline GDP, absorption of labour is stalled. This suggests that India is perfecting a growth model designed to function with clinical efficiency, while quietly leaving its vast labour force behind.

For much of India’s fiscal history, capex played a secondary role. It expanded when revenues permitted and was restrained when deficits widened. That changed after the pandemic. From 2020-21 onwards, capex expenditure ceased to function as a counter-cyclical instrument and instead became the organising principle of fiscal policy.

The data capture this shift. Capex expenditure as a share of total expenditure rose from roughly 12% in 2020-21 to over 22% in recent estimates. The underlying logic is well established. Public infrastructure spending is expected to crowd in private investment, raise productivity, and generate employment. Yet, the labour indicators running alongside this expansion reveal a disconnect. The youth NEET rate (share of people who are not in education, employment, or training) for ages 15-29 remains in the 23%-25% range, materially higher than several peer economies. Nearly one in four young Indians is structurally outside employment, education, or training even as public investment accelerates.

Construction reflects the sector most directly fuelled by public investment in the post-2015 infrastructure push. Agriculture reflects the sector a developing economy typically sheds labour from as productivity rises elsewhere. The trajectories of the two have moved in directions opposite to what development theory would anticipate across periods.