Understanding the Employment-Linked Incentive (ELI) Scheme

What is the Employment-Linked Incentive (ELI) Scheme?

The ELI scheme, approved by the Union Cabinet and included in the 2024–25 Budget, is designed to generate 35 million new jobs within the next two years. This initiative primarily targets the private sector, focusing on industries such as manufacturing, by providing direct financial incentives to employers who hire new workers and formalize employment.

Direct Benefits Under the ELI Scheme

For Employers:

• Employers can receive up to ₹15,000 per new employee as a one-time wage transfer when they hire fresh recruits in formal jobs.
• Additionally, they receive ₹3,000 for each worker who remains employed for more than two years.

For Employees (particularly first-time formal workers):

• Support linked to the Provident Fund:
• For salaries between ₹10,000 and ₹20,000/month: ₹2,000 per month.
• For salaries between ₹20,000 and ₹1 lakh/month: ₹3,000 per month.

These benefits apply to workers registered with the EPFO.

Who Will Benefit from This Scheme?

• Private companies across various sectors, especially in manufacturing.
• Approximately 19.2 million first-time employees.
• About 15.8 million recurring formal recruits.

For example, if a textile factory hires 200 new employees at a salary of ₹12,000/month, the factory will receive ₹15,000 x 200 = ₹30 lakh as a one-time wage transfer. If these workers remain employed for over two years, the firm will gain an additional ₹3,000 per worker, totaling ₹6 lakh more. The workers also benefit from monthly PF-linked support of ₹2,000.

Importance of the ELI Scheme

• This scheme helps to increase formal employment in a country where a significant portion of the workforce operates informally.
• It aligns with the Economic Survey 2024, which states that India must create 7.85 million non-farm jobs each year until 2030.
• It promotes skilling and retention, as incentives rise with continuity and formal employment.
• The focus on manufacturing, start-ups, and labor-intensive industries is pivotal.

Monitoring the Scheme

• The initiative will utilize AI and data analytics to monitor job creation and benefit distribution.
• The Labour Ministry will keep a list of firms utilizing the scheme to prevent misuse, such as rotating the same workers to claim benefits.

Potential Gains from the ELI Scheme

• This initiative addresses jobless growth by providing firms with incentives to hire.
• It fosters long-term employment relationships.
• It supports India’s Viksit Bharat@2047 vision by facilitating high-quality job creation.

Limitations and Concerns

• Short-term fiscal burden: The scheme involves an expenditure of ₹24,000 crore over two years.
• There is a risk of "ghost hiring" or creating false employee records to claim incentives.
• Firms may misuse the scheme by laying off and rehiring workers to gain repeated incentives.
• The scheme is limited to EPFO-registered firms, potentially excluding informal or very small enterprises.
• No clear mechanisms for skilling or upskilling are linked to the new jobs.
• A strong focus on manufacturing might overlook other high-potential sectors such as digital services and the care economy.

Critical Viewpoint

While the ELI scheme is timely and essential in a post-pandemic economy with high youth unemployment, its success hinges on targeted implementation, robust digital monitoring, and connections with skilling initiatives. It is crucial to ensure that incentives do not distort the labor market or favor large formal enterprises over smaller ones. Without genuine productivity gains and sustainable employment, financial support alone may not achieve the desired long-term impact.

Frequently Asked Questions (FAQs)

Q1. Who is eligible to receive wage support under the ELI scheme?
Answer: Only first-time formal workers entering EPFO-registered jobs and their employers are eligible for wage support under the ELI scheme.

Q2. How is the scheme different from previous employment subsidies?
Answer: This scheme includes direct wage transfers, retention incentives, and emphasizes sustained employment, unlike earlier initiatives that mainly encouraged one-time hiring.

Q3. What sectors are targeted by the ELI scheme?
Answer: The scheme prioritizes the manufacturing sector, particularly labor-intensive industries such as textiles, leather, electronics, and small-scale enterprises.

Q4. Will the ELI scheme help reduce informality in employment?
Answer: Yes, by promoting registration with the Provident Fund and encouraging long-term contracts, it aims to transition informal workers into formal employment.

Q5. What is the timeline for implementation of the ELI scheme?
Answer: Jobs created between August 2025 and July 2027 will qualify for the benefits under the ELI scheme.