Promise and Pitfalls of the Employment-Linked Incentive Scheme
July 6, 2025

Why in News?

The Union Cabinet has approved an Employment-Linked Incentive (ELI) scheme with a budget of ₹99,446 crore, as announced in the 2024–25 Union Budget.

Aimed at boosting job creation, especially in the manufacturing sector, the ELI scheme is part of the Prime Minister’s broader five-scheme employment package, which also includes internships with major companies and youth skill development initiatives.

What’s in Today’s Article?

  • Key Provisions of the Employment-Linked Incentive (ELI) Scheme
  • Employers’ Response to the Employment-Linked Incentive (ELI) Scheme
  • Trade Union Response and Concerns on the ELI Scheme

Key Provisions of the Employment-Linked Incentive (ELI) Scheme

  • Implementation duration: August 1, 2025 – July 31, 2027
  • Implementing Agency: Employees Provident Fund Organisation (EPFO)
  • Goal: Create over 3.5 crore jobs in two years
  • Expected Beneficiaries: 1.92 crore newly employed individuals
  • Employee Benefits
    • Eligibility: Salaries up to ₹1 lakh/month
    • Incentive: One-month EPF wage (up to ₹15,000)
    • Disbursal:
      • 1st instalment after 6 months of service
      • 2nd instalment after 12 months
    • Mode: Direct bank transfer
    • Savings Component: Part of the benefit will go into a fixed deposit account, withdrawable later
  • Employer Incentives
    • Eligibility: Establishments registered with EPFO
    • Support: Up to ₹3,000/month for each new employee retained for at least 6 months, for two years
    • For manufacturing firms, the incentives extend to the 3rd and 4th years as well

Employers’ Response to the Employment-Linked Incentive (ELI) Scheme

  • Employers have called the ELI scheme a “laudable initiative” that encourages first-time employment and sustained job creation, especially in manufacturing.
  • They highlighted the scheme’s potential to boost labour-intensive sectors and transform India’s employment ecosystem.
  • Industry experts stressed the need to include micro and small manufacturing units, especially those with fewer than 20 employees, under the scheme’s benefits.
    • They proposed shifting the scheme to the Ministry of MSME and using a structured reimbursement model based on payroll growth.
  • Experts suggested a direct monthly subsidy to both employer and employee, tied to continued employment, for simpler and wider adoption.

Trade Union Response and Concerns on the ELI Scheme

  • The Bharatiya Mazdoor Sangh (BMS) has welcomed the scheme but called for expanding social security and improving job quality.
  • The other 10 central trade unions have criticised the scheme, citing risks and past experiences.
  • Fear of Misuse of Funds
    • Unions fear that the ELI scheme could divert workers' savings to subsidise employers.
    • They referenced the 2020 Production-Linked Incentive (PLI) scheme, where benefits reportedly went to large firms without meaningful job creation.
  • Concerns Over EPFO’s Role
    • EPFO is a custodian of employee savings, not a job-creating body.
    • Unions question how it can implement an incentive scheme without dedicated government funding.
  • Call for a Separate Implementation Body
    • There is growing demand for the creation of a specialised agency to administer the scheme, instead of placing the responsibility on EPFO, which lacks the mandate and mechanism for employment generation.
  • Other Concerns
    • Quality vs Quantity Trade-off - Firms may focus on hiring more rather than hiring skilled or productive workers.
    • Short-Term Gains - Risk of firms inflating hiring temporarily to gain benefits, without long-term employment commitment.
    • Implementation Challenges - Requires robust verification mechanisms to prevent misuse and false reporting of employment data.
    • Skewed Sectoral Impact - May benefit larger firms with better compliance systems, leaving out MSMEs that employ a majority.

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