Union Budget 2026-27: Why labour and skilling still miss the productivity question
Unless employment and training are linked to productivity, performance, and survivability, labour reforms risk creating jobs that exist on paper but fail in practice
By T Muralidharan
Every Union Budget ritualistically promises jobs, skills, and livelihoods. And every year, the numbers appear reassuring — higher allocations, expanded schemes, and new training targets. Yet, beneath this surface optimism lies an uncomfortable truth: India’s labour and skilling challenge is no longer about quantity. It is about productivity, survivability, and performance.
Employment: when counting jobs replaces building work
Employment remains politically and economically central. Budgetary measures continue to emphasise formalisation, new employment-linked incentives, and compliance-driven job creation. While these initiatives may improve headline employment statistics, they fail to confront three realities that employers across sectors quietly acknowledge.
First, infant attrition in frontline and entry-level roles often exceeds 40–60% within the first 90 days. Second, performance dispersion between top and bottom workers routinely spans 5–20 times. Third, a large share of formally trained and employed workers never reach baseline productivity.
Jobs are being created — but many do not survive long enough to matter, nor do they deliver sustained economic value to either the employer or employee. India is moving slowly past a phase where the core problem is jobless growth. The deeper problem today is low-quality employment growth — jobs that exist on paper but fail in practice.
The productivity signal from the Budget
Importantly, Finance Minister Nirmala Sitharaman herself framed productivity as the centre of India’s growth strategy. In her Budget speech, she stated that the government’s first kartavya is to “accelerate and sustain economic growth by enhancing productivity and competitiveness and building resilience in a volatile global environment.”
This articulation is significant. It elevates productivity from a sectoral concern to a national economic duty. If productivity is central to growth strategy, it must necessarily cascade into labour policy, employment frameworks, and skilling design. Yet, this linkage remains weak.
Skilling: Scale without absorption
Skilling continues to occupy a prominent place in Budget rhetoric. Fresh allocations reinforce commitment to large national skilling missions. However, after nearly a decade of aggressive skilling investments, employers still report widespread job-readiness gaps.
The reason is structural. India’s skilling ecosystem remains overwhelmingly input-driven — enrolments, training hours, certifications. What is missing is any serious measurement of on-the-job performance after training.
Across frontline-heavy sectors such as BFSI, retail, logistics, manufacturing operations, and services, more than half of trained recruits struggle to perform critical tasks independently. Skilling has become a parallel ecosystem, disconnected from workplace outcomes.
The Gen Z paradox
Today’s workforce entrants — predominantly Gen Z — face shorter attention spans, lower tolerance for abstract content, and a preference for learning that delivers immediate utility. Yet skilling programmes remain content-heavy and breadth-oriented, attempting to teach everything rather than ensuring mastery of what actually matters.
As training durations compress due to cost pressures, superficial coverage replaces deep learning. The result is trained but unproductive workers. This is not a failure of young workers. It is a failure of training design, which is not focused on mastery
Why averages hide failure
One of the biggest blind spots in labour and skilling policy is the excessive reliance on averages. Average wages, average productivity, and average training outcomes conceal extreme dispersion.
In most organisations, a small fraction of employees generate a disproportionate share of output, while the bottom quartile contributes marginally. When programmes are evaluated using averages, failure remains invisible.
The case for critical task mastery
High performers do not do more tasks. They do fewer, more important tasks extremely well. These critical tasks directly drive outcomes such as sales, quality, safety, and customer retention.
Training that focuses on mastering a small set of high-impact tasks, reinforced on the job and measured through performance data, delivers productivity gains within weeks. Yet, current skilling frameworks reward coverage, not mastery.
Promotion of co-invested enterprise-led skilling
The Budget, unfortunately, does not explicitly incentivise employer–driven productivity-linked skilling through tax incentives. Enterprise-led models that link learning to performance metrics and ROI (Return on Investment) can bridge the gap between public intent and private execution. Such approaches treat skilling not as social spending but as economic investment.
How other countries support employer-led skilling
Across progressive economies, employer-led skilling is no longer treated as an HR initiative or a welfare programme. It is recognised as economic infrastructure — essential for productivity, competitiveness, and workforce resilience. As a result, governments design skilling systems that are pulled by employers, not pushed by institutions.
Singapore offers perhaps the most integrated model. Instead of fragmented training schemes, it operates a coherent employer-centric ecosystem. Employers receive direct training credits that can be used for workforce upskilling alongside enterprise transformation initiatives. Crucially, Singapore also offsets the opportunity cost of training by reimbursing a portion of employee wages during training periods.
This ensures that training decisions are not constrained by short-term manpower pressures. Even more importantly, a significant share of public funding is channelled only when training is embedded within job redesign, productivity improvement, or technology adoption, making skilling inseparable from business outcomes.
In the United Kingdom, employer leadership is institutionalised through the Apprenticeship Levy system. While often debated, the core strength of the model lies in how it compels employers to plan workforce development rather than treat training as discretionary. Employers control how training funds are deployed, select approved programmes, and can even transfer funds across their supply chains. This has shifted skilling discussions into boardrooms, where leaders ask not whether to train, but how to extract maximum value from mandated workforce investment.
Canada follows a highly pragmatic approach. Government funding flows through “job grant” models where employers identify skill needs, choose training providers, and co-invest alongside the state. The emphasis is on short-cycle, job-relevant skills rather than long academic programmes. Public funding is released only when employers commit to real roles, real workers, and real outcomes, making training demand-led by design.
Germany anchors employer-led skilling within its broader labour-market stability framework. Training is actively supported during periods of technological transition or business change, with the state sharing both training and wage costs. This allows companies, especially small and medium enterprises, to upskill workers instead of shedding them. Skilling is thus treated as an alternative to layoffs, reinforcing long-term employment continuity.
Across Nordic countries, employer-led adult learning is supported through wage-replacement systems when employees attend approved vocational programmes. The philosophy is clear: skills development benefits the economy as a whole, and, therefore, the cost of time spent learning should not be borne by employers alone.
The common thread across all these systems is clear. Governments reduce friction for employers by subsidising time, aligning skilling with productivity, and giving employers control over what skills are developed. Training is funded not for activity, but for outcomes, ensuring that employer-led skilling becomes a core lever of national competitiveness, not a peripheral HR exercise.
Labour reforms without capability reform
Labour code reforms aim to balance flexibility and protection. However, regulatory reform alone cannot compensate for capability deficits. Flexible labour markets without productive workers increase churn and reduce global competitiveness. Protective frameworks without skill mastery preserve underperformance.
India does not lack labour policy, skilling schemes, or budgetary intent. What it lacks is a productivity-first lens. Until employment success is measured not by jobs created but by jobs that perform and endure, and until skilling success is measured not by certificates but by output per worker, Budgets will continue to look progressive while outcomes lag.
The next phase of India’s labour story will be written not by bigger allocations, but by a sharper focus on productivity, mastery, and performance.
(The author is Founder Chairman, TMI Group and Quanta People)
