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Govt Launches Employment-Linked Incentive Scheme

Govt Launches Employment-Linked Incentive Scheme

02-07-2025

Why in the News?

  1. The Employment-Linked Incentive (ELI) Scheme was announced in the Union Budget 2024-25.
  2. It was presented in July 2024 with an outlay of Rs. 99,446 crore.
  3. It aims to create 3.5 crore jobs over a period of two years.
  4. In July 2025, it was approved by the Union Cabinet.
  5. The ELI scheme is part of the Prime Minister’s package to promote employment, skilling, and formal job creation.

Key Highlights

  1. About ELI Scheme
    1. It aims to boost employment generation, especially in the manufacturing sector.
    2. It helps to increase the formalization of the workforce that is more people working in the formal sector.
    3. It focuses on encouraging private sector participation in hiring, especially the first time job seekers, and also promotes skill development and job retention.
    4. It also helps to enhance social security across all sectors.
    5. It is implemented by the Ministry of Labour and Employment with Employees’ Provident Fund Organisation (EPFO) as the nodal agency.
  2. Structure of the Scheme
    1. The scheme is divided into 2 parts

Part A - For First Time Employees

Part B - For Sustained Employment
  1. A wage subsidy will be provided by the government up to one month’s wage.
  2. The first time employees who are registered with EPFO will get one month Employees’ Provident Fund (EPF) wages up to Rs.15,000 in two installments.
  3. Eligibility: Employees with salary up to Rs. 1 lakh.
  4. First installment will be payable after completion of six months in the job.
  5. Second installment will be payable after 12 months of service and completion of the financial literacy programme by the employee.
  6. Also, to encourage savings, a part of the incentive will be kept in the savings instrument of the deposit account which can be withdrawn after a fixed period of time
  7. All payments will be made through Direct Benefit Transfer (DBT).
  1. It will incentivise the employers to create additional employment.
  2. The employers will get benefits for employees with a salary up to Rs. 1 lakh.
  3. The employers will be incentivised up to Rs. 3000 per month for each additional employee with sustained employment of at least six months.
  4. This is valid for two years which can be extended to four years for the manufacturing sector.
  5. Slabs:
    1. Incentive of Rs.1000 for employees with salary up to Rs.10,000.
    2. Incentive of Rs.2000 for employees with salary range of Rs.10,000 - Rs.20,000.
    3. Incentive of Rs.3000 for employees with salary range of Rs.20,000 - Rs.1 lakh.
  6. All payments will be made to the Pan-linked accounts of the employers.
  1. Additional Provisions
    1. Establishments which are registered with the EPFO are required to:
      1. Hire at least 2 additional employees (if it already employs less than 50 people)
      2. Hire at least 5 additional employees (if it already has more than 50 employees)
    2. Duration of the scheme: 1 August 2025 to 31 July 2027

Wage Subsidy

  1. A wage subsidy refers to financial assistance that reduces the cost of employing labour.
  2. It may be provided to employers (to lower hiring costs) or directly to employees (to boost take-home pay or incentivize formal employment).
  3. Under the Employment Linked Incentive (ELI) Scheme
    1. The benefits are provided directly to employees via Direct Benefit Transfer (DBT).
    2. This supports first-time formal workers and encourages them to remain employed.
    3. It indirectly reduces the employer’s cost of workforce retention by improving job stability.

Employees’ Provident Fund (EPF) Wages

  1. EPF wages are the part of your salary used to calculate Provident Fund contributions, usually including Basic Pay + Dearness Allowance.
  2. These wages are considered for both employee and employer contributions to the EPF account.

Impact of the Scheme on the Economy

  1. Boost to Formal Employment
    1. Incentivises job creation in formal sectors, especially in MSMEs and manufacturing.
    2. Aims to formalise the unorganised workforce.
    3. Will benefit sectors where EPFO coverage is limited.
  2. Youth Empowerment
    1. Targets first-time employees, helping new entrants to the labour market.
    2. Addresses youth unemployment through structured support.
    3. Increases access to social security and wage stability.
  3. Stimulus to Manufacturing Sector
    1. Long-term incentives (4 years) for the sector.
    2. Helps meet PLI scheme goals by enhancing manpower.
    3. Encourages labour-intensive units to scale up.
  4. Ease of Doing Business
    1. Transparent, PAN-linked and DBT systems reduce leakages.
    2. Employer-friendly norms with minimum compliance burden.
    3. Predictable incentive timeline helps in business planning.
  5. Multiplier Effect
    1. Higher income leads to greater consumption, boosting demand.
    2. Formal employment improves tax compliance and EPFO base.
    3. Indirect support to housing and education through increased income levels.

Challenges and Way Forward

Challenges

Way Forward

Implementation challenges in small industries

Awareness campaigns and capacity building

Potential for misuse or ghost employees

Strict EPFO audit mechanisms and cross-verification

Uneven uptake across states/sectors

State-level incentives and sectoral flexibility

Short time window for job creation (2 years)

Possible extension based on performance

Trade unions consider the scheme as deceptive, saying it gives public money to employers.

Improve transparency and consult the stakeholders involved.

Conclusion

The Employment-Linked Incentive (ELI) Scheme represents a major policy push to create formal, stable, and youth-oriented employment, especially in the manufacturing sector. While ambitious in scope and financial outlay, the success of the scheme will hinge on transparent implementation, robust monitoring, and industry cooperation. If executed effectively, ELI can be a game-changer for India's workforce landscape.

Ensure IAS Mains Question

Q. The Employment-Linked Incentive (ELI) Scheme aims to boost formal employment while addressing labour market challenges. Critically examine its design, objectives, and potential impact on India's economy. (250 words)

 

Ensure IAS Prelims Question

Q. With reference to the Employment-Linked Incentive (ELI) Scheme, consider the following statements

  1. The scheme provides incentives for both hiring and retention of employees.
  2. The scheme is applicable only to employees earning below ₹15,000 per month.

Which of the following statements is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Answer: a

Explanation

Statement 1 is correct: ELI Scheme provides incentives for both hiring first-time employees and retaining them through monthly employer benefits.

Statement 2 is incorrect: The scheme is applicable to employees earning up to ₹1 lakh per month, not just those below ₹15,000. In fact, the subsidy amount varies by salary slab, with the highest benefit (₹3,000/month) offered to employees earning ₹20,000 to ₹1 lakh.

 

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