When it comes to the focus of its Feb. 1 annual budget, the government of Indian Prime Minister Narendra Modi faces a stark choice: between $200 billion and 200 million.

The first figure refers to the size of the budget deficit. Amid rising inflation and hardening global interest rates, is it wise to have a bloated shortfall for a third year? The second number should help with a possible answer: 200 million jobs are missing from the economy — they’ll be hard to revive without fiscal policy playing a supportive role.

Two years of Covid-19 have deepened the dichotomy in India’s production networks. Informal activity, which supports 90% of jobs, was under pressure to come into the fold of taxation and social security even before infections and lockdowns. Since March 2020, it has retreated into a shell. Organized activity has stepped into the breach and lifted output back to pre-pandemic levels, though not yet to its previous growth path.

The revival of jobs is proving to be even more challenging because the same output can be produced in the formal sector with less labor. Hiring is muted outside of a few white-collar pockets like computer software. For India’s employment-to-population ratio to be at the global average, nearly 600 million people need to be at work. Currently, only a little more than 400 million are.

Of late, this pandemic-exacerbated “formalization” has led to a fiscal mirage. New Delhi’s tax bounty — net of what it shares with state governments — has swelled by 26% in the fiscal year ending on March 31, according to projections by Bloomberg Economics. India Inc. and a small, salaried middle-class are contributing generously to the exchequer from their profits, incomes and consumption. Producer-price inflation at a three-decade high has stretched nominal gross domestic product by 17.6%, giving a further boost to the value of activity that can be taxed.

Still, despite the sale of Air India, the loss-ridden national carrier, revenue from the disposal of state assets is falling short of target. Public expenditure, meanwhile, is tracking higher than during the first year of the pandemic because of food and fertilizer subsidies and a rural employment guarantee. All three are elevated because of deficient incomes in the informal sector, including farming.

At 15 trillion rupees ($200 billion), or 6.5% of GDP, the current fiscal year’s deficit would be broadly on target. To the extent some of it would result from ramped-up capital spending, it should support jobs, especially in construction. Aiming for a similar-sized deficit for the coming year, however, may bump up against funding constraints. The current year’s shortfall was bridged by the central bank’s purchases of government bonds. The money it printed in the process flowed into stock markets and created wealth for a tiny section of the society.

But now the Reserve Bank of India has begun withdrawing its stimulus amid stagflation concerns. It’s selling bonds to soak up excess liquidity. The yield on the 10-year government note has firmed up to its pre-pandemic level of 6.75%, even though short-term interest rates are still nearly 150 basis points lower. Frothy Indian stock markets have joined a global selloff. To prevent a steep rise in long-term borrowing costs, Finance Minister Nirmala Sitharaman may be tempted to pare back the deficit.

Premature fiscal consolidation might backfire, though. As long as the informal economy continues to languish, households’ wage incomes — and, therefore, private consumption — may be tepid. Firms may not put up new factories and generate more jobs, not when they’re sitting on underused capacities. And if global growth were to slow because of tightening monetary conditions in advanced economies, a thinning cushion of export demand could exaggerate the demand funk.

India’s 28 state governments have a closer connection to households, and could have helped. But Covid-19 has ravaged their finances even more than New Delhi’s, forcing them to cut back on education and nutrition to accommodate the surge in healthcare expenses. Plus, they’re on the hook for their power distribution utilities’ $80 billion debt. Should the federal government fail to step up its investment in physical infrastructure, it would be hard to get money flowing to casual laborers and small proprietors.

In all likelihood, Team Modi would aim for a light trimming of the deficit and fill what will still be a wide resource gap partly by coaxing banks to invest more in public debt and partly by pushing for India’s inclusion in global bond indexes so that funds buy the rest. It would try to solve the jobs problem within the ambit of the formal economy — for instance, by doubling down on its $1.3 trillion national infrastructure pipeline and a $27 billion rupee package of production-linked incentives for the private sector.

A flip side of those Make in India subsidies has been a disturbing increase in India’s import tariffs, going against the grain of the gradual opening up of the economy in the previous three decades. Foreign investors may be wary of a further protectionist tilt in the budget as tariff increases, particularly on parts and components, would keep the country out of global supply chains and make its underemployment challenge worse.

India can’t create 200 million missing jobs overnight. But if New Delhi is taking the risk of keeping its $200 billion fiscal spigots open, then it must aim to give the pandemic-scarred working class a fair shake.