Cabinet announces incentive scheme to Generate more jobs | ELI

Why in the News ?

In July 2025, the Union Cabinet approved a major Employment-Linked Incentive (ELI) Scheme with a substantial budget outlay of ₹99,446 crore.

• The scheme aims to incentivise job creation, particularly in the manufacturing sector, by providing financial support to employers who generate new jobs and encouraging the recruitment of first-time employees. 
• It is expected to create over 3.5 crore jobs in the next two years, with extended benefits for manufacturing up to four years. 
• This scheme is part of a broader ₹2 lakh crore youth-focused employment and skilling package announced in the Union Budget 2024-25.

Background

India’s Employment Challenge

India’s labour market has long faced structural issues, including:

• High youth unemployment (especially among educated urban youth),
• A low female labour force participation rate (around 25%),
• The dominance of informal sector employment (over 90% of total employment),
• Limited job creation in the formal, wage-paying sector, and
• A disconnect between skilling and employability.

The post-COVID-19 period exacerbated job losses in many sectors, especially for youth entering the labour market. Although India’s GDP growth rebounded strongly, it did not always translate into proportional employment growth, raising concerns of jobless growth.

Existing Initiatives for Employment Generation

Over the years, the Government of India has launched several schemes to promote employment and skilling:

• Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): incentivised employers to hire new employees by paying the EPF contribution.
• Production-Linked Incentive (PLI) Schemes: focused on boosting domestic manufacturing, indirectly creating jobs.
• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): provided a social safety net in rural areas through guaranteed employment.
• Skill India Mission and PM Kaushal Vikas Yojana (PMKVY): aimed at enhancing youth employability.

However, many of these schemes faced limitations in scale, implementation bottlenecks, and a lack of effective linkage with formal job creation.

Features of the Employment-Linked Incentive (ELI) Scheme

Objective

To generate large-scale formal employment, particularly for youth entering the workforce for the first time, while supporting employers in hiring and retaining new employees.

Budget and Timeframe

• Total outlay: ₹99,446 crore
• Duration: Two years (primary phase from August 1, 2025, to July 31, 2027)
• Extended benefits for the manufacturing sector: Up to 4 years (i.e., till 2029)

Scope of the Scheme

• Target: Creation of 3.5 crore jobs, including 1.92 crore first-time employees
• Eligibility:
  • Jobs created between August 1, 2025 and July 31, 2027
  • Employees with a monthly salary up to ₹1 lakh
  • Minimum employment tenure of 6 months
• Applicable across sectors, with extended incentives for manufacturing.

Incentives for Employers

• For each eligible new employee, the government will provide:
  • Up to ₹3,000 per month per employee
  • For two years
  • Incentives will continue for the 3rd and 4th years for manufacturing sector employers.
• Employers must ensure sustained employment for at least six months for eligibility.

Benefits for First-Time Employees

• One-time wage support equivalent to one month’s salary, capped at ₹15,000.
• Encourages formalisation and first-time workforce participation.

Linkages with Other Schemes

• Complementary to PM Vishwakarma Yojana, PM Mudra Yojana, and Digital Skilling Platforms.
• Aligned with the broader goal of employment, skilling and entrepreneurship for over 4.1 crore youth under a total employment package of ₹2 lakh crore.

Expected Impact

Job Creation

• Direct creation of 3.5 crore formal jobs.
• Boost to first-time entrants, especially young graduates and diploma holders.

Manufacturing Sector Focus

• Long-term incentives can revive manufacturing employment, which has declined in employment share over the past decade.
• Aligns with ‘Make in India’ and ‘Atmanirbhar Bharat’ goals.

Formalisation of Workforce

• Encourages formal employment with EPFO, ESIC registration, and compliance.
• Reduces informal hiring, which often lacks job security and social benefits.

Boost to Youth Participation

• The wage incentive for first-time workers lowers entry barriers, especially for marginalized and rural youth.
• Aims to bridge the gap between skill acquisition and actual employment.

Employer Benefits

• Reduces the cost of new hiring, especially in SMEs.
• Encourages labour-intensive sectors like textiles, electronics, food processing, and automotive to expand capacity.

Concerns and Criticism

Trade Union Opposition

• The Centre of Indian Trade Unions (CITU) has termed the scheme as a “deceptive transfer of public funds to corporate employers”.
• Concerns that the scheme may subsidise employers without ensuring worker rights, wages, or job security.

Implementation Monitoring

• Past schemes like PMRPY saw challenges in identifying genuine beneficiaries.
• Ensuring transparency and accountability in monitoring additional job creation remains a challenge.

Exclusion of the Informal Sector

• India’s informal sector constitutes over 90% of employment.
• The ELI scheme may not cover informal jobs, thus leaving out a major chunk of the workforce.

Possibility of Ghost Beneficiaries

• Risk of inflated employee records or short-term hiring and firing to claim benefits.

Limited Scope Beyond Manufacturing

• While manufacturing benefits from extended support, other sectors like IT, services, and gig work may not get similar attention.

Way Forward

Robust Implementation Mechanism

1. Create a real-time employment verification system, perhaps linked with Aadhaar, EPFO/ESIC records.
2. Build an integrated National Employment Registry to prevent misuse.

Periodic Review and Feedback

• Independent audits and third-party assessments to measure actual impact.
• Modify scheme parameters based on the employment elasticity of sectors.

Broader Sectoral Inclusion

• Consider extending incentives to other labour-intensive sectors like construction, logistics, tourism, and retail.
• Introduce similar support for platform and gig workers.

Integration with Skill Development

• ELI should be linked with Skilling and Re-skilling programs like PMKVY to ensure job-readiness of new entrants.
• Focus on creating apprenticeship models with incentives.

Ensure Labour Rights

• Introduce compliance mechanisms to ensure that employers do not exploit the incentive without providing:
  • Fair wages,
  • Safe working conditions,
  • Social security benefits.

. Inclusivity and Equity

• Special focus on SC/ST/OBC, women, persons with disabilities, and economically weaker youth.
• Tie-up with employment exchanges, local panchayats, and urban local bodies for outreach and implementation.

Conclusion

The Employment-Linked Incentive (ELI) Scheme is a bold step by the Indian government to address the chronic challenge of unemployment, particularly among young people and during the post-pandemic recovery period. With a budget of nearly ₹1 lakh crore, it has the potential to influence the formal labour market and drive manufacturing growth directly. However, its success will hinge on robust design, strong oversight, and fair implementation.

MAINS PRACTICE QUESTION

Question: What is the Employment-Linked Incentive (ELI) Scheme? How can it help in creating jobs and reducing unemployment in India?

PRELIMS PRACTICE QUESTION