Nagappan Arun

Photo Credits: Frans van Heerden

India’s capex has surged from ₹4.39 lakh crore to ₹12.2 lakh crore in less than half a decade, with the government betting that building public infrastructure like roads, railways and highways will lead to job creation and draw in private investment. It hasn’t worked. The jobs that are being created by the Indian economy are, for the most part, informal and low-quality. Private firms are not investing more, and social programs like MGNREGA are being cut to fund it. The government needs to shift towards spending on housing, rural roads and local services, sectors where every rupee creates far more jobs, or India will end up infrastructure-rich and employment-poor.

Background

India is building itself faster than it is employing. Since FY2020-21, the centre has redirected union expenditure towards capital investment, from Rs. 4.39 lakh crore capital expenditure in RE 2020-211 to about Rs. 11 lakh crore capital expenditure in RE 2025-262, Budget 2026-27 further extends this to about Rs. 12.2 lakh crore3 which is an increase of 11.5% over the revised estimates of 2025-264. The stated strategy of the centre is the “crowding in” effect: public investment (through government capital expenditure) in infrastructure will catalyse capital from the private sector and generate employment while simultaneously sustaining GDP growth. This article interrogates this thesis by examining whether the strategy’s sectoral composition is aligned with its stated employment objectives and what fiscal tradeoffs it has created.

The scale of expansion of capital expenditure is unparalleled in recent Indian fiscal history. Capital expenditure as a share of GDP has roughly doubled in the last decade or so, driven mostly by allocations to roads and highways by way of allocations to the Ministry of Road Transport and Highways (MoRTH), railway modernisation, and defence capital procurement. The centre has supplemented its own capex with ₹1.5 lakh crore in 50-year interest-free loans5 to state governments for infrastructure spending in FY2025–26 alone.

Capital Intensity and the Job Creation (Gap)

Yet these headline numbers obscure the capital intensity of the investments being made by the centre. Highways, railway corridor upgrades, and metro transit systems are increasingly built through large engineering contracts that rely on inexpensive, efficient heavy machinery rather than expensive, inefficient manual labour. This means that jobs created per rupee spent are fewer than they were in earlier generations of infrastructure building, which is a problem further compounded by weak linkages to small domestic businesses and suppliers. The government has assumed that building more infrastructure automatically means employing more people. The data suggests otherwise.
The most recently conducted national labour survey, the Periodic Labour Force Survey (PLFS) 2023–24, carried out by the Ministry of Statistics and Programme Implementation (MoSPI), does capture some improvements: the share of people working or looking for work

1 Government of India, Ministry of Finance. (2021, February 1). Summary of Union Budget 2020-21 [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1693907&reg=3&lang=2

2 Government of India, Ministry of Finance. (2026, February 1). Summary of Union Budget 2026-27 [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleseDetail.aspx?PRID=2221458&reg=3&lang=1

3 Government of India, Ministry of Finance. (2026, February 1). Union Budget FY 2026-27: Capital expenditure allocation [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2222521&reg=3&lang=1

4 PRS Legislative Research. (2026, February). Union budget analysis 2026-27. PRS India. https://prsindia.org/files/budget/budget_parliament/2026/Union_Budget_Analysis-2026-27.pdf

5 Pti. (2025, February 1). Union Budget provides ₹1.5 lakh cr. outlay for interest-free loans to States for infrastructure development. The Hindu.
https://www.thehindu.com/business/budget/union-budget-provides-15-lakh-cr-outlay-for-interest-free-loans-to-states-for-infrastructure-development/article69167486.ece

rose to 60.10%6 nationally, which is a real gain, but a closer look reveals a more problematic story. The unemployment rate remains stagnated at 3.20%7. Self-employment, much of it in the informal sector with no real job security or social protection, rose to a whopping 58.40% of all employment8, while only a mere 21.70% earned regular wages or salaries9. The construction sector, supposedly the main channel through which infrastructure spending creates jobs for our economy, is overwhelmingly informal10 and migrants11 dominated. More people may be counted as “employed”, but the quality of work available to most Indians has not improved in step with the scale of public spending on capital infrastructure, public spending that could have been put to use in improving, say, healthcare or education.

The Failure of Crowding-In Private Investment

The crowding-in strategy, the idea that government investment will draw in private investment from companies, has also largely failed to materialise. According to data from the Centre for Monitoring Indian Economy (CMIE), new project announcements fell 22% year on year in the December 2024 quarter12. A Centre for Social and Economic Progress (CSEP)

6 Ministry of Statistics and Programme Implementation, Government of India. (2024, September 22). Periodic Labour Force Survey (PLFS): Annual report, July 2023 – June 2024 [Press note]. MoSPI. https://www.mospi.gov.in/sites/default/files/press_release/Press_note_AR_PLFS_2023_24_22092024. pdf

7 Ministry of Statistics and Programme Implementation, Government of India. (2024, September 22). Periodic Labour Force Survey (PLFS): Annual report, July 2023 – June 2024 [Press note]. MoSPI. https://www.mospi.gov.in/sites/default/files/press_release/Press_note_AR_PLFS_2023_24_22092024. pdf

8 The People’s Archive of Rural India. (n.d.). Periodic Labour Force Survey (PLFS) Annual Report: July 2023-June 2024. People’s Archive of Rural India. https://ruralindiaonline.org/as/library/resource/periodic-labour-force-survey-plfs-annual-report-july-20 23-june-2024/#:~:text=The%20WPR%20among%20those%20aged,and%207.8%20per%20cent%20f emales

9 The People’s Archive of Rural India. (n.d.). Periodic Labour Force Survey (PLFS) Annual Report: July 2023-June 2024. People’s Archive of Rural India. https://ruralindiaonline.org/as/library/resource/periodic-labour-force-survey-plfs-annual-report-july-20 23-june-2024/#:~:text=The%20WPR%20among%20those%20aged,and%207.8%20per%20cent%20f emales

10 Wells, J. (2007). Informality in the construction sector in developing countries. Construction Management and Economics, 25(1), 87–93. https://doi.org/10.1080/01446190600601339

11 Srikanth, G., & Jabbar, M. (2025). Impact of migrant workers on construction projects, labor markets, and industry development [Research Article]. International Journal of Creative Research Thoughts (IJCRT), 13(7), c619–c620. https://ijcrt.org/papers/IJCRT2507297.pdf

12 Bureau reporter. (2025, January 2). New projects unveiled down 22 per cent in Q3: CMIE. Financial Express.
https://www.financialexpress.com/policy/economy-new-projects-unveiled-down-22-per-cent-in-q3-c mie-3705254/

analysis found that the investments that drive industrial growth by private nonfinancial corporations dropped sharply by 17% between 2011-12 and 2023-241314.

Additionally, the analysis found that investments are failing to translate into actual capital formation, roughly 40% of planned investments were translating into tangible assets over the four decades leading up to 201115. Since then, that conversion rate has fallen sharply to about 15%, and since 2016–17 it has stagnated at roughly 10%16. RBI data further shows that, despite an increase in total investment announcements, project completion rates have steadily declined to just 9% in 2022-2317.

Capex at the Cost of What?

Rather than investing in new factories or machinery, large firms have been buying back shares and paying higher dividends18, a sign of confidence in their own balance sheets, not in the broader investment climate of our country. This matters because fiscal space is always constrained, with Budget 2026-27 targeting a fiscal deficit of 4.3% of GDP19, meaning that every rupee spent on constructing a road is a rupee not spent elsewhere.
These trade offs are not far off and abstract, they are tangible. MGNREGA which is the rural job guarantee scheme that has for nearly two decades provided income security for India’s poorest households has had its central allocation cut from 86,000 crore to 30,000 crore20 in the current budget, even as its replacement scheme VB-G RAM G, whose central allocation

13 Kohli, R., & Bhapta, K. (2025, November 6). Between expectation and realisation: India’s private investment paradox. CSEP Blog. Centre for Social and Economic Progress. https://csep.org/blog/between-expectation-and-realisation-indias-private-investment-paradox/

14 Disaggregated, year-wise data on private non-financial corporate investment is not consistently available in the public domain. The estimate cited here (17%) is drawn from a recent analysis by the Centre for Social and Economic Progress (CSEP, 2025), one of the few credible consolidated sources currently available.

15 Kohli, R., & Bhapta, K. (2025, November 6). Between expectation and realisation: India’s private investment paradox. CSEP Blog. Centre for Social and Economic Progress. https://csep.org/blog/between-expectation-and-realisation-indias-private-investment-paradox/

16 Kohli, R., & Bhapta, K. (2025, November 6). Between expectation and realisation: India’s private investment paradox. CSEP Blog. Centre for Social and Economic Progress. https://csep.org/blog/between-expectation-and-realisation-indias-private-investment-paradox/

17 Kohli, R., & Bhapta, K. (2025, November 6). Between expectation and realisation: India’s private investment paradox. CSEP Blog. Centre for Social and Economic Progress. https://csep.org/blog/between-expectation-and-realisation-indias-private-investment-paradox/

18 Patil, A. K. P. (2022, March 28). India’s rising buyback tide doesn’t raise all boats equally. The Ken. https://the-ken.com/story/indias-rising-buyback-tide-doesnt-raise-all-boats-equally/

19 PRS Legislative Research. (2026, February). Union budget analysis 2026-27. PRS India. https://prsindia.org/files/budget/budget_parliament/2026/Union_Budget_Analysis-2026-27.pdf

20 Bureau reporter. (2026, February 1). VB-G RAM G gets Rs 95,000-plus crore allocation under Union Budget 2026-27, MGNREGA funds reduced. The Print.
https://theprint.in/india/governance/vb-g-ram-g-gets-rs-95000-plus-crore-allocation-under-union-budg et-2026-27-mgnrega-funds-reduced/2842622/

according to experts falls far short21 of what’s needed to fulfil its promise of 125 days of guaranteed work per eligible household.

Rebalancing Capex

The deeper problem is one of composition and not merely scale, the government is spending on the right thing – infrastructure, but in the wrong mix. Highways and rail corridors produce economic gains in the long run but generate fewer jobs per rupee than affordable housing, rural roads or municipal urban services. If the government’s goal through capex remains increasing employment, it must rebalance the capex towards these labour-intensive sectors without necessarily having to spend more in total. The rebalancing has not happened with Budget 2026-27, and until it does, India risks possibly building itself a future which is infrastructure-rich and employment-poor.

References:

Government of India, Ministry of Finance. (2021, February 1). Summary of Union Budget 2020-21 [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1693907&reg=3&lang=2

Government of India, Ministry of Finance. (2026, February 1). Summary of Union Budget 2026-27 [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleseDetail.aspx?PRID=2221458&reg=3&lang

Government of India, Ministry of Finance. (2026, February 1). Union Budget FY 2026-27: Capital expenditure allocation [Press release]. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2222521&reg=3&lang=1

PRS Legislative Research. (2026, February). Union budget analysis 2026-27. PRS India. https://prsindia.org/files/budget/budget_parliament/2026/Union_Budget_Analysis-2026-27.p df

Pti. (2025, February 1). Union Budget provides ₹1.5 lakh cr. outlay for interest-free loans to States for infrastructure development. The Hindu. https://www.thehindu.com/business/budget/union-budget-provides-15-lakh-cr-outlay-for-inte rest-free-loans-to-states-for-infrastructure-development/article69167486.ece

Ministry of Statistics and Programme Implementation, Government of India. (2024, September 22). Periodic Labour Force Survey (PLFS): Annual report, July 2023 – June 2024 [Press note]. MoSPI.

21 India Development Review. (2026, February). Budget 2026-27 fails to address the reality of employment insecurity. IDR Online.
https://idronline.org/article/livelihoods/budget-2026-27-fails-to-address-the-reality-of-employment-in security/

https://www.mospi.gov.in/sites/default/files/press_release/Press_note_AR_PLFS_2023_24_2 2092024.pdf

The People’s Archive of Rural India. (n.d.). Periodic Labour Force Survey (PLFS) Annual Report: July 2023-June 2024. People’s Archive of Rural India. https://ruralindiaonline.org/as/library/resource/periodic-labour-force-survey-plfs-annual-repor t-july-2023-june-2024/#:~:text=The%20WPR%20among%20those%20aged,and%207.8%20 per%20cent%20females

Kohli, R., & Bhapta, K. (2025, November 6). Between expectation and realisation: India’s private investment paradox. CSEP Blog. Centre for Social and Economic Progress. https://csep.org/blog/between-expectation-and-realisation-indias-private-investment-paradox/

Bureau reporter. (2025, January 2). New projects unveiled down 22 per cent in Q3: CMIE. Financial Express.
https://www.financialexpress.com/policy/economy-new-projects-unveiled-down-22-per-cent-in-q3-cmie-3705254/

Bureau reporter. (2026, February 1). VB-G RAM G gets Rs 95,000-plus crore allocation under Union Budget 2026-27, MGNREGA funds reduced. The Print. https://theprint.in/india/governance/vb-g-ram-g-gets-rs-95000-plus-crore-allocation-under-un ion-budget-2026-27-mgnrega-funds-reduced/2842622/

India Development Review. (2026, February). Budget 2026-27 fails to address the reality of employment insecurity. IDR Online. https://idronline.org/article/livelihoods/budget-2026-27-fails-to-address-the-reality-of-employ ment-insecurity/

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