India's Troubled Relationship Between Capex, Infra-Growth and Employment Creation |
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As the presentation of the Union Budget 2026 remains a week away, the state of the Indian economy, amidst a larger government push to fiscally prioritise capital expenditure, and crowd-in private investment for an infra-driven growth has failed to uplift vital expectations around jobs and better employment-linked industrial growth.
In pushing for infrastructure growth expansion, the Union government’s capital-expenditure volume surged 40% year-on-year in the first half of FY26, as total capex utilisation reached Rs 6.6 trillion. The Union government is now planning to further increase this investment by 7% in the upcoming budget to around Rs 12 trillion, signalling a continued belief in and commitment to infrastructure driven growth.
The government confronts a core concern for a decade of sustained capex increases – driven at the cost of revenue expenditure and welfare needs – that should have ensured greater job creation but rather delivered joblessness. As youth unemployment stands at approximately 14% for those aged 15–29, nearly three times national average of roughly 5%. Labour force participation remains ‘structurally weak’ despite Rs 11.21 trillion committed to capex.
Source: Government of India, Ministry of Finance. Union Budget at a Glance, 2015–16 to 2025–26.
The capex stragey and the crowding-in illusion
India’s public investment push over the past decade has been premised on a simple causal chain: more public capex would create infrastructure, infrastructure would attract private investment, and private investment would create jobs. Yet the empirical record suggests a far more uneven reality.
Public capex has expanded rapidly, with roads and railways comprising the largest share of the centre’s capex at 62.8%. The Ministry of Road Transport and Highways utilised 63% of its FY26 budget by September 2025, while railways achieved 57%, both outpacing the national 52% utilisation rate.
RBI’s real sector data indicates that new private projects in textiles, food processing, apparel, and leather declined as a share of total announcements between FY18 and FY25, even as overall project costs rose to Rs 2.67 trillion in FY26, driven mainly through renewables, power, and data infrastructure.
A critical nuance is the time lag in the crowding-in process. Freight corridors, expressways, and logistics hubs typically take several years to have their wider economic effects assessed. As of 2024–25, most sections of the Eastern and Western Dedicated Freight Corridors are operational.
Yet, official evaluations focus on reductions in freight time and logistics costs rather than on documented industrial relocation or employment gains. This indicates that improved connectivity alone has not yet translated into observable labour-intensive investment, and that factors such as land costs, availability of worker housing, regulatory certainty and skill readiness remain more decisive than transport upgrades in shaping private location decisions.
Source: NITI Aayog’s India’s Service Sector Report (2025)
Employment elasticity patterns, which measure how much employment changes in response to a change in economic activity (driven by GDP growth), reinforce this structural misalignment.
Over 2011-2024, construction (0.60) and services (0.43) were the only sectors consistently absorbing........