How human capital acquires a centre stage in India’s growth strategy

Therefore, key questions are: 

1. Has the budget gone beyond signalling intent? 

2. Has it redirected public expenditure meaningfully towards raising labour productivity and increasing women’s participation?

3. Has it sought to integrate emerging sectors, such as the orange economy and the care economy, into the broader growth framework? 

Human capital and issues around job creation, skill absorption 

If human capital is to be taken from a slogan to reality, the link between education and employment needs to be strengthened. The budget recognises this gap. It proposes a High Powered ‘Education to Employment and Enterprises’ Standing Committee to examine how service sectors and new technologies, including AI, are reshaping the job markets and the skills they demand. 

This acknowledgement is significant. While India’s growth has been led by the service sector, technology is altering the nature of work faster than classrooms can adapt. The formation of a committee is an initial step towards integrating skills and technology into education. The main challenge, however, is to align and redesign the curricula for strengthening apprenticeships so that learning responds to industry demand.

On the skilling front, the Ministry of Skill Development and Entrepreneurship has seen its net allocation rise to 9,885 crores. Under PM SETU, over 6,140 crore has been earmarked to upgrade 1,000 Industrial Training Institutes (ITIs) and establish National Centres of Excellence. This suggests a shift from short-term training drives towards institutional reform. 

ITIs remain the backbone of vocational education, though many of them struggle with outdated equipment and weak industry linkage. Modernisation could help improve their credibility and relevance. Moreover, the aim of increasing apprenticeship incentives, including job-related support for firms, is to encourage greater participation in the industries.

Yet experience warrants caution. Youth unemployment remains high, and placement outcomes after training are uneven. Many apprenticeships are short-term and low paid. Skill development can help improve productivity only when it leads to stable employment and wage growth. While the budget emphasises on strengthening the skills supply, the larger challenge lies on the demand side – sustained job creation and absorption of these newly acquired skills.

In addition, if human capital is at the centre of India’s growth, the significance of women’s work cannot be ignored. 

Women’s workforce participation and rural-urban gap 

In recent years, female labour force participation has risen. According to the Periodic Labour Force Survey (PLFS) 2022-23, the female labour force participation rate (LFPR) for those aged 15years and above stands at 41.7 per cent. But this bold number hides an important rural-urban divide: rural female participation is 47.6 per cent, while urban female participation is 28.0 per cent.

This rural-urban gap highlights the other side of the story. Much of the increase in female labour force participation has come from rural areas, where women are often engaged in agriculture, self-employment, or unpaid family work. Thus, the participation has increased but the quality of employment remains uneven.

A larger share of rural women is engaged in informal work with low wages and limited social protection. On the other hand, urban women, despite higher levels of education, face challenges related to safety, mobility, childcare, and the availability of suitable jobs.

The gender budget accounts for approximately 8.86 per cent (4.49 lakh crore) of the total expenditure of the 2026-27 Budget. The budget proposes employment-linked incentives to encourage firms to hire women, skill development pilots for adolescent girls, and the establishment of girls’ hostels in every district to support their enhanced participation in STEM institutions. 

Addressing structural barriers 

While these initiatives are important steps towards addressing structural barriers (safety, mobility and access to technical education), the economic argument for increasing women’s participation is also compelling. A 10 percentage-point rise in female labour force participation could add 1-2 percentage points to GDP over time. Women’s employment increases household incomes, improves investment in children’s education, and contributes to long-term human capital formation.

The budget also links women’s participation to the care economy. Poshan 2.0 continues with an allocation of 23,100 crores, alongside expanded training for allied health professionals and caregivers. This is crucial because unpaid care responsibilities prevent many women from entering or continuing paid employment.

However, the allocations to the Ministry of Women and Child Development show only modest increase, largely in line with inflation. Expanding female participation requires constant investment in childcare services, urban safety, and workplace support systems. Countries that raised female participation in the workforce did so through sustained investments in childcare and eldercare infrastructure.

Growing recognition of the care economy

The budget also gives attention to the care economy. It proposes training for 1.5 lakh caregivers and allied health professionals, the expansion of medical hubs, and the strengthening of mental health institutions. This indicates a growing recognition of the care economy both as employment generator and productivity enabler.

Care work performs two economic functions. First, it creates employment, especially for women, in health, education, childcare, and elderly care. These sectors are labour-intensive and locally embedded. Second, expanded care services will help reduce unpaid domestic responsibilities, which disproportionately fall on women. By expanding affordable care infrastructure, the state can indirectly increase women’s ability to participate in paid work. 

Allocations for women’s welfare have increased significantly, partly through linkages with housing and education. While welfare allocations are not identical to labour market participation, such efforts can complement asset ownership and improve decision-making power within households for women.

However, sustained progress in women’s labour force participation requires more than sectoral announcements. It demands flexible work policies, safe transport, accessible childcare, and effective enforcement of equal pay. The budget addresses some of these concerns, but a coherent gender-responsive labour strategy is still evolving.

Creativity as an economic strategy

If skilling prepares youth for existing jobs, the Orange Economy looks towards future jobs. The Orange Economy refers to industries built on creativity, culture, and intellectual property. It includes animation, visual effects, gaming, comics (AVGC), film, music, design, digital content, fashion, advertising, and other cultural services. Unlike traditional industries that depend heavily on physical capital, the Orange Economy relies on ideas, talent and digital tools. 

Globally, its economic weight is far from marginal. According to the World Bank report, the creative economy generates about USD 2.3 trillion annually, accounting for nearly 3 per cent of global GDP and supporting around 30 million jobs worldwide. Its relative resilience during global economic shocks has reinforced its importance as a diversification strategy and innovation-led growth.  

Budget 2026-27 recognises this potential. The proposal to expand AVGC labs across 15,000 secondary schools and 500 colleges could yield at least two key benefits. First, it may widen access to digital creative skills beyond metropolitan centres, and second, it helps ensure early exposure to emerging digital jobs and strengthens the future talent pipeline. This is framed as preparation for a rapidly growing creative and digital content industry. 

Moreover, the Orange Economy, broadly defined as cultural and creative industries, is labour-intensive, skill-intensive, and export-oriented. Industries that are part of the orange economy generate high value addition globally with relatively lower physical capital intensity, and are seen as potential avenues of employment and entrepreneurship. Yet, risks remain. Creative industries require not only infrastructure but also mentorship networks, market exposure, and robust intellectual property frameworks. 

Furthermore, while the creative economy can create high value jobs, it may not absorb large semi-skilled labour. The orange economy is important for diversification and productivity growth, but it complements rather than replaces traditional sectors.

Towards integrating physical capital with human and social capital

Budget 2026-27 signals a shift in the language of growth – from building assets alone to developing human capital. Skilling, women’s participation, creativity, and care increasingly define productivity and long-term development. India’s demographic reality necessitates this shift.

The country cannot rely only on highways and industrial corridors alone. Sustainable growth requires skilled workers, educated and economically empowered women, supportive families, and new-age sectors capable of generating value and employment.

But direction alone is not enough. ITI training needs to translate into stable jobs. The Orange Economy needs to build an ecosystem, not just labs. The Care Economy needs to expand at a scale that reduces domestic constraints on women’s work. The Budget attempts to integrate physical capital with human and social capital. Conceptually, this is an important step. Infrastructure yields higher returns when workers are skilled, healthy and able to participate.

But inclusive growth depends on sustained funding, coordination across levels of government, and measurable improvements in wages, employment quality, and labour force participation. Budget 2026-27 marks a shift in direction. Whether it becomes a turning point will depend on execution and real improvements in employment and wages.

Post read questions

India’s growth strategy is shifting from asset creation to human capital formation. Discuss this with reference to the budget 2026-27.

While India’s growth has been led by the service sector, technology is altering the nature of work faster than classrooms can adapt. How does the budget seeks to address the education–employment gap?

Despite rising female labour force participation, what kind of structural gender inequalities persist in labour market? Analyse the rural–urban divide in women’s workforce participation in India and its socio-economic implications.

Industries that are part of the orange economy generate high value addition globally with relatively lower physical capital intensity, and are seen as potential avenues of employment and entrepreneurship. Analyse its potential contribution to India’s economy.

(Pushpendra Singh is an Assistant Professor of Economics at Somaiya Vidyavihar University, Mumbai, and Archana Singh is an Assistant Professor of Gender and Economics at the International Institute for Population Sciences, Mumbai.)

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