Can the budget unlock labour market potential?

India's labour market has made notable strides in recent years, bolstered by a strong post-pandemic recovery and increased formalisation of employment.

- Punarjit Roychowdhury

The Periodic Labour Force Survey (PLFS) shows a steady decline in the unemployment rate, with higher labour force participation and an improved worker-population ratio. However, several challenges persist, undermining the sustainability of these gains. One of the primary concerns is the stagnation of salaried employment, which suggests weaker demand for skilled labour or slower expansion in the industrial and service sectors, both essential for long-term economic growth.

Agriculture continues to dominate the employment landscape, with its share actually rising over the last six years, while the shares of industry and services have declined. Despite a surge in corporate profits, wage growth has been negligible, resulting in stagnant real wages in both rural and urban India. This indicates that the growth in employment has not translated into substantial income gains for the workforce.