UPSC Editorial Analysis: Employment Linked Incentive (ELI) Scheme

*General Studies-2; Topic: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.*

Introduction

• The Union Cabinet’s approval of the Employment Linked Incentive (ELI) Scheme in 2025 signals a proactive step towards addressing one of India’s most persistent economic challenges — jobless growth.

• Despite India maintaining one of the highest GDP growth rates among major economies, the growth has not been inclusive in terms of employment generation.

• The ELI scheme aims to incentivize formal employment creation through direct benefit transfers for both employers and first-time employees.

Context and Rationale

• Jobless Growth Paradox: India’s economy has consistently registered high growth rates. However, this growth hasn’t translated into proportional employment, especially in the formal sector.

• Unemployment Trends: According to the Centre for Monitoring Indian Economy (CMIE), India’s unemployment rate rose from 5.1% in April 2025 to 5.6% in May 2025. The Periodic Labour Force Survey (PLFS) corroborates these figures and highlights an alarming youth unemployment rate of 16.03% (ages 15–29). Female Labour Force Participation Rate (FLFPR) in India stands at ~25%, significantly lower than the global average of 47% (World Bank, 2024).

• According to the Centre for Monitoring Indian Economy (CMIE), India’s unemployment rate rose from 5.1% in April 2025 to 5.6% in May 2025.

• The Periodic Labour Force Survey (PLFS) corroborates these figures and highlights an alarming youth unemployment rate of 16.03% (ages 15–29).

• Female Labour Force Participation Rate (FLFPR) in India stands at ~25%, significantly lower than the global average of 47% (World Bank, 2024).

• Informal Sector Dominance: More than 80% of India’s workforce is employed in the informal sector with limited social security, job stability, or upward mobility.

Key Features of the ELI Scheme

Feature | Description

Target Period | August 1, 2025 – July 31, 2027

Budget Allocation | ₹99,446 crore

Target Beneficiaries | 1.92 crore (19.2 million) first-time employees

Employee Benefits | ₹15,000 (maximum) as wage support in 2 instalments after 6 and 12 months

Financial Literacy Training | Mandatory for second instalment

Employer Benefits | 10% of employee’s monthly EPF wage (max ₹3,000/month for 2 years)

Intended Objectives

• Stimulate Job Creation: Encourage employers, especially in labour-intensive sectors like manufacturing, to expand their workforce.

• Promote Formal Employment: Bring more workers under the formal economy and ensure EPF and social security inclusion.

• Support First-Time Job Seekers: Reduce barriers for youth entering the labour market for the first time.

• Boost Female Employment: By reducing the cost of onboarding new workers, especially women, the scheme could nudge greater female workforce inclusion.

Critical Analysis: Opportunities and Strengths

• Incentivizing Employers

• Employers are reimbursed for a part of the wage cost (up to ₹3,000), potentially reducing the burden of onboarding fresh employees. Particularly beneficial to MSMEs, which often hesitate to formalize due to cost constraints.

• Employers are reimbursed for a part of the wage cost (up to ₹3,000), potentially reducing the burden of onboarding fresh employees.

• Particularly beneficial to MSMEs, which often hesitate to formalize due to cost constraints.

• Youth Employment Focus

• The scheme strategically targets first-time employees, a group often caught in the “experience trap”. Could provide crucial support in Tier-II and Tier-III towns where formal employment is limited.

• The scheme strategically targets first-time employees, a group often caught in the “experience trap”.

• Could provide crucial support in Tier-II and Tier-III towns where formal employment is limited.

• Financial Literacy Mandate

• Linking financial support with basic financial education is a forward-thinking move. It promotes financial inclusion and responsible savings behavior, especially among low-income youth.

• Linking financial support with basic financial education is a forward-thinking move.

• It promotes financial inclusion and responsible savings behavior, especially among low-income youth.

• Synergy with Skill India and Make in India

• By encouraging hiring, the scheme can amplify the outcomes of existing skilling initiatives like PMKVY (Pradhan Mantri Kaushal Vikas Yojana) and boost labour absorption in manufacturing.

Challenges and Concerns

• Limited Incentive for Employers

• ₹1,500 benefit for hiring an employee with a ₹15,000 wage may not be enough to influence hiring decisions, especially in capital-intensive sectors. Employers won’t hire purely based on subsidies — job creation must be demand-driven.

• ₹1,500 benefit for hiring an employee with a ₹15,000 wage may not be enough to influence hiring decisions, especially in capital-intensive sectors.

• Employers won’t hire purely based on subsidies — job creation must be demand-driven.

• Skilling and Employability Gaps

• According to the India Skills Report 2024, only 46.2% of graduates were found employable. Without parallel investment in quality skilling, newly hired employees may lack job-ready capabilities, reducing scheme efficacy.

• According to the India Skills Report 2024, only 46.2% of graduates were found employable.

• Without parallel investment in quality skilling, newly hired employees may lack job-ready capabilities, reducing scheme efficacy.

• Short Scheme Duration

• A two-year window may be too short to create systemic change in employment patterns. Industry demand cycles, economic shocks, or election cycles could hamper implementation.

• A two-year window may be too short to create systemic change in employment patterns.

• Industry demand cycles, economic shocks, or election cycles could hamper implementation.

• Monitoring and Leakages

• Direct Benefit Transfers (DBT) must be efficiently monitored to ensure that only eligible employees receive benefits. There is a risk of ghost beneficiaries, inflated wage records, or fake payroll entries.

• Direct Benefit Transfers (DBT) must be efficiently monitored to ensure that only eligible employees receive benefits.

• There is a risk of ghost beneficiaries, inflated wage records, or fake payroll entries.

International Comparisons and Best Practices

• United States: The Work Opportunity Tax Credit (WOTC) gives tax relief to companies hiring from targeted groups including youth and veterans.

• Germany: Subsidies for apprentice training are linked with direct job placement, ensuring skill-job match.

• Bangladesh: The Employment Generation Program for the Poorest (EGPP) targets vulnerable groups through wage subsidies combined with community works.

The ELI scheme should evolve by learning from such models, particularly in integrating training with guaranteed employment and gender-sensitive approaches.

Way Forward

• Extend Duration and Coverage

• Expand the scheme to at least five years to achieve sustained behavioural change among employers. Include contractual and gig workers under formal job incentives, given the rise of platform-based employment.

• Expand the scheme to at least five years to achieve sustained behavioural change among employers.

• Include contractual and gig workers under formal job incentives, given the rise of platform-based employment.

• Strengthen Skilling Linkages

• Integrate the ELI scheme with skilling institutions and the Skill India Digital Platform (SIDP) to ensure skill-job mapping. Mandate employer-led training modules before financial disbursal.

• Integrate the ELI scheme with skilling institutions and the Skill India Digital Platform (SIDP) to ensure skill-job mapping.

• Mandate employer-led training modules before financial disbursal.

• Focus on Women and Marginalized Workers

• Offer additional incentives for hiring women, SC/ST, and differently-abled individuals. Link with Maternity Benefit Act and creche support to improve working conditions for women.

• Offer additional incentives for hiring women, SC/ST, and differently-abled individuals.

• Link with Maternity Benefit Act and creche support to improve working conditions for women.

• Robust Monitoring Mechanism

• Use real-time digital dashboards, Aadhaar-based tracking, and integration with EPFO/ESIC portals to prevent fraud. Conduct third-party audits to assess employer compliance.

• Use real-time digital dashboards, Aadhaar-based tracking, and integration with EPFO/ESIC portals to prevent fraud.

• Conduct third-party audits to assess employer compliance.

• Broaden Sectoral Coverage

• While manufacturing is rightly the focus, sectors like textiles, tourism, healthcare, logistics, and electronics also offer high employment elasticity.

Conclusion

• A policy like ELI can catalyze change only when embedded in a broader framework of employment-oriented economic strategy, ease of doing business, and youth-centric education reform.

• If implemented with integrity and foresight, it could be a key lever in turning India’s growth story into a truly inclusive one.

Practice Question:

The Employment Linked Incentive (ELI) Scheme is a step towards formalizing the labour market in India. Critically evaluate its potential to address the issues of jobless growth and youth unemployment. (250 Words)