Context

• On July 1, 2025, the government approved the Employment Linked Incentive (ELI) Scheme with an ambitious outlay of ₹99,446 crore, aiming to stimulate employment generation.
• While the scheme reflects a commitment to addressing India’s persistent labour market challenges, its design and focus raise critical concerns.
• In a labour market marked by deep capital-labour asymmetries, a formal–informal sector divide, and a chronic mismatch between employment opportunities and employability, the ELI risks reinforcing existing inequalities rather than resolving them.

Employer-Centric Design and Labour Market Mismatch

• At its core, the ELI Scheme adopts an employer-centric approach, providing fiscal incentives to employers, particularly in the manufacturing sector, to create jobs.
• However, this strategy overlooks the structural issue of skill mismatch.
• The Economic Survey 2024–25 reveals that only 8.25% of graduates secure jobs aligned with their qualifications, while over half are underemployed in semi-skilled or elementary roles.
• Wage data further highlights the disparity: nearly 46% of graduates in low-skill jobs earn less than ₹1 lakh per annum, while only 4.2% in specialised positions reach ₹4–8 lakh.
• With merely 4.9% of Indian youth receiving formal vocational training, industry demand and workforce preparedness remain deeply misaligned.
• In this context, subsidising employers to hire an under-skilled workforce does little to enhance productivity or worker well-being.
• Instead, it risks strengthening employers’ bargaining power, widening wage gaps, and perpetuating a cycle of low-skill, low-wage employment.

Concerns Surrounding Employment Linked Incentive

• Exclusion of the Informal Sector
  • The scheme’s reliance on Employee’s Provident Fund Organisation registration effectively limits its benefits to the formal sector, thereby excluding 90% of the workforce employed informally.
  • This exclusion not only sidelines workers without social security and formal contracts but also entrenches a dual labour market, one where the state invests heavily in the formal sector while leaving the informal sector unsupported.
  • Such a policy orientation channels public resources towards enterprises already better positioned, marginalising low-wage, unregistered workers who absorb most new labour market entrants.
• Risks of Disguised Unemployment and Sectoral Bias
  • Without safeguards, the ELI Scheme could inadvertently normalise disguised unemployment, situations where individuals appear employed but contribute minimally to output, common in agriculture and informal services.
  • Employers might also reclassify existing jobs as new employment to claim subsidies, undermining the policy’s intent.
• Marginalisation of Women and Youth
  • Moreover, the scheme’s emphasis on manufacturing reflects an outdated assumption about its job-creating potential.
  • Manufacturing now accounts for less than 13% of total employment, with agriculture and services together employing nearly 70% of the workforce.
  • Rising automation and capital intensity have reduced manufacturing’s employment elasticity, making it an increasingly limited avenue for large-scale job creation.
  • This sectoral bias risks further marginalising women, rural youth, and informal workers, many of whom find employment in low-skill services or agriculture.

The Path Forward: Towards a More Equitable Employment Strategy

• While the ELI Scheme signals political will to tackle unemployment, its current design risks deepening structural inequalities.
• A more effective approach would integrate robust skill development and education reforms, ensuring that low-skilled workers can meet industry needs and access better-quality jobs.
• Policy emphasis should shift from short-term headcount increases to long-term strategies that sustain employment, enhance productivity, and strengthen labour rights.

Conclusion

• True employment generation must extend beyond wage subsidies to employers.
• It requires addressing the roots of underemployment: inadequate skilling infrastructure, weak social security coverage, and sectoral imbalances in job creation.
• An equitable and sustainable employment strategy must recognise the realities of India’s diverse labour market, ensuring that both formal and informal workers can share in the gains of economic growth.