Context

On July 1, 2025, the government launched the Employment Linked Incentive (ELI) Scheme with a significant allocation of ₹99,446 crore, aiming to stimulate large-scale job creation across the country. While the scale of the initiative signals strong political intent to tackle India’s chronic unemployment issues, its employer-oriented framework and narrow focus raise several pressing concerns.

India’s labour market is marked by profound asymmetries between capital and labour, a sharp divide between formal and informal sectors, and a persistent mismatch between the available jobs and the skills of jobseekers. In such a scenario, the ELI Scheme risks exacerbating existing inequalities rather than resolving them.

Employer-Centric Focus and the Skill Mismatch Challenge

At its foundation, the ELI Scheme follows an employer-driven approach, incentivising job creation—particularly in the manufacturing sector—through direct fiscal support to employers. However, this approach fails to address the deep structural problem of skill mismatch that plagues the Indian labour market.

According to the Economic Survey 2024–25, just 8.25% of graduates find employment that matches their qualifications. More than half of them are underemployed, often working in semi-skilled or elementary jobs. The disparity becomes more apparent when examined through the lens of wages:

• 46% of graduates in low-skill roles earn less than ₹1 lakh per annum,
• While only 4.2% in specialised jobs earn between ₹4–8 lakh per annum.

Adding to this disconnect is the fact that only 4.9% of Indian youth receive formal vocational training, illustrating the profound misalignment between workforce preparedness and industry demand.

Under these conditions, subsidising employers to hire an under-skilled and underprepared workforce contributes little to boosting national productivity or improving worker well-being. Instead, it enhances employers’ bargaining power, deepens wage disparities, and entrenches a low-skill, low-wage employment trap for much of the workforce.

Critical Concerns with the Employment Linked Incentive Scheme

Formal Sector Bias and Informal Sector Exclusion

A fundamental limitation of the scheme is its dependence on Employee’s Provident Fund Organisation (EPFO) registration as the primary criterion for eligibility. This design choice effectively excludes nearly 90% of India’s workforce, which operates in the informal sector.

By focusing on formal-sector enterprises—already better positioned in terms of resources and access to credit—the scheme marginalises informal workers, who often lack job contracts and social security. This further cements a dual labour market, wherein government support is concentrated in the formal sector, while the informal economy, which absorbs the majority of new entrants into the labour market, is left under-resourced and unsupported.

Risks of Artificial Employment and Misuse

Without adequate monitoring mechanisms, the ELI Scheme could inadvertently promote disguised unemployment—situations in which individuals are technically employed but contribute little to overall productivity, a condition commonly seen in agriculture and informal services.

Employers may also manipulate the system by reclassifying existing jobs as newly created ones to avail of the subsidies, thereby defeating the scheme’s intended purpose.

Sectoral Bias and Gendered Exclusion

Another major flaw in the scheme lies in its heavy focus on manufacturing—a sector that now contributes to less than 13% of total employment in India. In contrast, agriculture and services combined employ nearly 70% of the workforce. Given the rapid rise of automation and capital-intensive technologies, manufacturing no longer has the employment-generating capacity it once did.

This sectoral imbalance disproportionately disadvantages women, rural youth, and informal workers, most of whom are concentrated in low-skilled service sectors or agriculture. Thus, the scheme’s limited sectoral scope may further entrench existing social and economic exclusions.

A More Inclusive and Equitable Approach to Employment

While the ELI Scheme signals genuine intent to tackle unemployment, its current structure has the potential to deepen systemic inequities in the labour market. A more balanced and inclusive strategy must go beyond subsidising employers and focus on long-term investments in education, skill development, and worker rights.

What is needed is a coherent policy shift—from increasing employment numbers in the short term to sustaining meaningful employment that enhances both productivity and dignity of work. This requires aligning vocational training with actual market needs, improving the coverage of social protection schemes, and ensuring that informal workers are not left out of the development process.

Conclusion

True employment generation cannot be reduced to wage-based incentives for employers. It must address the root causes of underemployment—including poor skilling infrastructure, limited social safety nets, and imbalanced job growth across sectors.

To be genuinely effective, an employment strategy must reflect the complex and diverse realities of India’s labour market, ensuring that opportunities for decent work are available to both formal and informal sector workers alike. Only then can economic growth translate into equitable and inclusive prosperity for all.