A Delicate Balancing Act Between Growth Ambitions And Rising Unemployment

Finance Minister Nirmala Sitharaman’s ninth Budget, presented in the shadow of punishing US tariff increases and persistent domestic anxieties, plumps for reassurance over reform. It arrives at a moment when the government is intent on projecting India as a resilient “bright spot” in a darkening global landscape, yet is constrained by the need to preserve hard-won fiscal credibility.

The political economy backdrop is unmistakable: a government seeking to calm markets unsettled by external trade shocks, keep growth on track ahead of another cycle of state elections, and signal that fiscal discipline remains non-negotiable—but without a commensurate reset in its compact with the unemployed, the informal workforce, or under-served social sectors.

With total expenditure pegged at Rs 53.5 lakh crore and capital outlay raised to Rs 12.2 lakh crore, the Budget leans heavily on the familiar twin planks of fiscal consolidation and infrastructure-led growth.

Global headwinds and trade risks

This is also the first Budget to be framed explicitly in response to a sharper-edged global environment, with President Donald Trump’s punitive 50 per cent tariffs threatening to slash Indian exports to the United States from $86.5 billion to about $50 billion. Sectors such as textiles, gems and jewellery, shrimp and carpets are bracing for what analysts describe as a 70 per cent collapse, endangering hundreds of thousands of jobs.

Against this grim backdrop, Sitharaman’s announcement of Biopharma SHAKTI with an outlay of Rs 10,000 crore over five years, the launch of India Semiconductor Mission 2.0, and a substantially enhanced Electronics Components Manufacturing Scheme appear less visionary than necessary—hedging strategies prompted by geopolitical compulsion rather than informed industrial policy.

Reforms and investor reassurance

The government’s much-vaunted “Reform Express”, touted as having delivered over 350 reforms since the Prime Minister’s Independence Day speech, must be assessed in this context. While GST simplification and the notification of Labour Codes may be welcomed by industry, the claim that these measures will meaningfully alter India’s growth trajectory in the near term strains credulity.

At the micro level, the Budget’s architecture is designed to soothe investors, with renewed emphasis on manufacturing, supply-chain deepening and customs rationalisation framed as hedges against unilateral tariff shocks. Employment and skilling, meanwhile, are again treated as outcomes of the investment and formalisation strategy rather than policy priorities in their own right.

The proposal for a high-powered ‘Education to Employment and Enterprise’ Standing Committee reflects an overdue recognition that India’s future employment generation will depend substantially on its ability to leverage its comparative advantage in knowledge-intensive services. Yet these remain long-gestation initiatives, whose benefits will accrue over years, offering little immediate relief to youth facing job market displacement.

MSMEs and middle-class concerns

For the MSME sector, the familiar mix of credit guarantees, working capital support and promises of compliance simplification is refreshed. However, unresolved frictions in the indirect tax and regulatory regime mean that many smaller firms will wait for actual implementation before endorsing the rhetorical support.

Perhaps most tellingly, the Budget offers little to reassure India’s beleaguered middle class, which has witnessed a steady erosion of real incomes and savings as the rupee has weakened to historic lows against the dollar and retail inflation has persistently outpaced nominal wage growth. On offer are only modest adjustments—a reduction in TCS rates for overseas education and medical treatment and extended ITR filing deadlines—underscoring the government’s belief that it has already front-loaded the tax largesse it can afford.

These procedural tweaks hardly constitute relief for households struggling with diminished purchasing power in an environment where traditional savings instruments have delivered negative real returns for extended periods.

Social spending trade-offs

It is in the Budget’s treatment of social protection and human capital that the trade-offs of this strategy become most visible. The determination to hold the fiscal deficit at 4.3 per cent of GDP, even while shouldering a record capital outlay, has translated into a relatively muted trajectory for health, education, nutrition and rural development—areas repeatedly identified by expert committees as central to sustaining inclusive growth.

In practice, this combination leaves limited room for expansive social spending. Schemes that are expanded frequently rely on technology-heavy delivery and tight targeting, presuming capacities that remain uneven across states and districts.

While the government rightly seeks to shield the growth story from protectionist headwinds through deeper integration into high-value manufacturing and services, it has yet to articulate an equally convincing plan for those whose immediate concerns are precarious work, stagnant real wages and fragile safety nets. The silence on any significant enhancement of broad-based social insurance, urban employment guarantees or comprehensive safety nets for informal workers sits uneasily with the scale of vulnerability laid bare over the past few years.

An uncertain equilibrium

All told, this Budget is a balancing act. It seeks to reassure bond markets and ratings agencies that the Centre will not backslide on fiscal orthodoxy and signals that the era of headline tax giveaways is over. Whether this equilibrium is enough to persuade unemployed youth, informal workers and an increasingly stretched middle class that they are central, rather than incidental, to the economic script will be decided not in the Lok Sabha but in lived experience.

The government’s wager appears to be that infrastructure-led growth and formalisation will trickle into durable employment and higher household incomes without a more explicit employment-guarantee architecture—a premise that remains unproven in an economy that must generate millions of quality non-farm jobs each year while navigating the most hostile external trade environment in a generation.