The Union Cabinet has given the green light to an Employment Linked Incentive (ELI) scheme with a substantial budget of approximately ₹1 lakh crore. This initiative aims to generate over 3.5 crore jobs within the next two years, with a significant focus on the manufacturing sector and the inclusion of first-time employees.

Announced in the Union Budget 2024-25, the ELI scheme is part of a broader package of five schemes designed to provide employment, skills, and opportunities for 4.1 crore young people, with a total budget of ₹2 lakh crore. The scheme is intended to address concerns about inadequate job creation at a time when the number of job seekers is increasing.

Key Components of the ELI Scheme

The ELI scheme operates through two primary components:

• Part A: Incentives for First-Time Employees: This part targets individuals who are entering the workforce for the first time and are registered with the Employees Provident Fund Organisation (EPFO). It offers wage support equivalent to one month's EPF wage, capped at ₹15,000, to be disbursed in two installments. To be eligible, employees must earn up to ₹1 lakh per month. The first installment is payable after six months of service, and the second after 12 months, contingent upon the employee completing a financial literacy program. To promote savings, a portion of the incentive may be deposited into a savings instrument for a fixed period. Payments will be made through Direct Benefit Transfer (DBT) using the Aadhar Bridge Payment System (ABPS).
• Part B: Incentives for Employers: This component focuses on encouraging employers to create additional jobs across various sectors, with a particular emphasis on the manufacturing sector. The government will provide incentives of up to ₹3,000 per month for two years for each additional employee who remains employed for at least six months. For the manufacturing sector, these incentives will be extended for an additional two years, covering the third and fourth years of employment. The employers will get incentives in respect of employees with salaries up to Rs 1 lakh. Payments to employers under Part B will be made directly into their PAN-linked accounts.

To avail of the scheme, establishments registered with the EPFO must hire a minimum of two additional employees (for those with fewer than 50 employees) or five additional employees (for those with 50 or more employees) on a sustained basis for at least six months. The benefits of the scheme will apply to jobs created between August 1, 2025, and July 31, 2027.

Expected Outcomes and Impact

The government aims to catalyze job creation across all sectors, especially in manufacturing, and to incentivize young people to join the workforce. The ELI scheme is also expected to formalize the country's workforce by extending social security coverage to a large number of young workers.

The scheme may particularly benefit new facilities in sectors like electronics, semiconductors, and automobiles. Industry leaders have welcomed the ELI scheme, with the Confederation of Indian Industry (CII) recognizing it as a significant step towards boosting employment and formalizing India's workforce. The CII believes the scheme will empower first-time job seekers and enable them to contribute to India's economic growth.

However, trade unions have expressed skepticism, with some viewing the scheme as a way to transfer public funds to employers.