Introduction

• The Union Cabinet approved the Employment Linked Incentive (ELI) Scheme in 2025 to address jobless growth.
• While India’s GDP growth is strong, employment growth—especially in the formal sector—has lagged.
• The ELI scheme provides financial incentives to employers and first-time employees to promote formal job creation.

Context and Rationale

• Jobless Growth Issue:
• Economic growth has not led to proportional formal employment creation.
• Unemployment Trends:
• CMIE reported a rise in unemployment from 5.1% (April 2025) to 5.6% (May 2025).
• PLFS shows youth unemployment (ages 15–29) at 16.03%.
• Female Labour Force Participation Rate (FLFPR) is around 25%, far below the global average of 47% (World Bank, 2024).
• Informal Sector Dominance:
• Over 80% of India’s workforce is in the informal sector with limited protections or benefits.

Key Features of the ELI Scheme

• Implementation Period: August 1, 2025 – July 31, 2027
• Budget: ₹99,446 crore
• Target Beneficiaries: 1.92 crore first-time employees
• Employee Benefits:
• Wage support up to ₹15,000 in two instalments (after 6 and 12 months)
• Financial literacy training mandatory to receive the second instalment
• Employer Benefits:
• 10% of employee’s EPF wage reimbursed (maximum ₹3,000/month for two years)

Intended Objectives

• Stimulate job creation, particularly in labour-intensive sectors like manufacturing
• Bring more workers into the formal economy and under social security coverage
• Reduce entry barriers for first-time job seekers
• Encourage higher female participation in the workforce by lowering hiring costs

Strengths and Opportunities

• Incentives to Employers:
• Helps reduce hiring costs, especially beneficial for MSMEs
• Support for Youth:
• Targets first-time workers who face barriers due to lack of experience
• Financial Literacy Requirement:
• Encourages responsible savings and financial inclusion
• Complement to Existing Schemes:
• Aligns with initiatives like PMKVY (Skill India) and Make in India

Challenges and Concerns

• Limited Financial Motivation:
• ₹1,500–₹3,000 incentive may not be enough in high-cost or capital-intensive sectors
• Employability Issues:
• India Skills Report 2024 shows only 46.2% of graduates are employable
• Without parallel skilling efforts, scheme effectiveness may decline
• Short Duration:
• Two years may not be sufficient for lasting change or behavioral shifts
• Risk of Misuse:
• Potential for ghost beneficiaries, inflated wage claims, or fake employee records

International Comparisons

• USA: Work Opportunity Tax Credit (WOTC) offers tax benefits for hiring disadvantaged groups
• Germany: Apprenticeship subsidies are linked to confirmed job placements
• Bangladesh: Employment Generation Program for the Poorest (EGPP) combines wage subsidies with public works

Way Forward

• Extend Scheme Duration:
• Consider expanding it to five years for deeper impact
• Include Informal and Gig Workers:
• Adapt incentives for platform-based and contract employment
• Integrate with Skilling Platforms:
• Align with Skill India Digital Platform (SIDP) and mandate employer-led training
• Focus on Marginalised Groups:
• Provide additional incentives for hiring women, SC/ST, and differently-abled individuals
• Link with the Maternity Benefit Act and child care support
• Strengthen Monitoring:
• Use Aadhaar-linked tracking and EPFO/ESIC portals
• Enable real-time dashboards and third-party compliance audits
• Widen Sectoral Coverage:
• Extend support to sectors like textiles, logistics, electronics, tourism, and healthcare

Conclusion

• The ELI Scheme has the potential to bridge the gap between economic growth and employment.
• Its success will depend on long-term integration with broader employment, skilling, and social protection strategies.
• If well-executed, it could play a critical role in making India''s growth more inclusive and sustainable.