Can the employment-linked incentive scheme address India's jobs challenge?

In a bid to support employment generation, the Union Cabinet earlier this month approved the employment-linked incentive (ELI) scheme, which was announced in the Union Budget last year as part of Prime Minister Narendra Modi’s package to facilitate skilling and job creation in the country.

 

The ELI scheme aims to support employment generation of more than 35 million jobs in two years with an outlay of Rs 1 trillion. The benefits of the scheme would be applicable to jobs created between August 1, 2025, and July 31, 2027.

 

Echoing industry’s sentiments, Chandrajit Banerjee, director general, Confederation of Indian Industry (CII), said that the ELI scheme opens doors for first-time jobseekers, empowering them to contribute meaningfully to India's growth story and also enabling employers to expand their workforce. It gives a decisive push to India's labour-intensive sectors.

 

The scheme consists of two parts, with Part A focused on first-timers and Part B focused on employers.

 

Under Part A, one month’s EPF wage up to Rs 15,000 in two instalments will be given to first-time employees registered with Employees’ Provident Fund Organisation (EPFO). Employees with salaries up to Rs 1 lakh will be eligible. The first instalment will be payable after six months of service and the second instalment will be payable after 12 months of service and completion of a financial literacy programme by the employee.

 

Part B will cover generation of additional employment with salaries up to Rs 1 lakh in all sectors, with a special focus on the manufacturing sector. The government will incentivise employers registered with EPFO, up to Rs 3,000 per month, for two years, for each additional employee with sustained employment for at least six months. For the manufacturing sector, incentives will be extended to the third and fourth years as well.

 

Employers (with fewer than 50 employees) will have to add at least two additional employees, or five additional employees (in case of 50 or more employees), to avail themselves of benefits.

 

Kartik Narayan, CEO-staffing, TeamLease Services, says that the scheme signals strong intent to tackle youth unemployment and strengthen workforce participation. For staffing companies, this opens up massive potential—not only to match talent with demand but also to drive skilling, compliance, and formalisation at scale. The structure of dual incentives for both employers and jobseekers is pragmatic and timely.

 

Highlighting incentives for the industry, Puneet Gupta, tax partner, EY India, said that this initiative marks a significant milestone in the journey towards a more robust and inclusive workforce and that the government is committed to fostering job creation, enhancing employability, and strengthening social security across all sectors.

 

“For example, an employer in the non-manufacturing sector hiring 100 additional employees could receive up to Rs 72 lakh over two years, while a manufacturing sector employer could benefit from an impressive Rs 1.44 crore over four years,” he added.

Concerns galore

Santosh Mehrotra, visiting professor, University of Bath, says that the government launched the production-linked incentive (PLI) scheme some time back to boost manufacturing. While some industries expanded, they did not generate significant output or jobs. The ELI scheme must be seen in this context.

 

“Subsidy schemes like these, globally and in India, have rarely delivered sustained success. Employers hire only if demand exists. Post-2019’s corporate tax cuts, firms used extra profits to repay debt rather than invest or hire. Without demand revival, these incentives won’t create jobs. Manufacturing job gains seen recently are mostly in the unorganised sector—not the organised sector this scheme targets,” he added.

 

While the Rashtriya Swayamsevak Sangh (RSS)-backed Laghu Udyog Bharati—which represents micro and small industries in India—welcomed the scheme, it pointed out that the focus of the scheme must be directed towards micro, small manufacturing units and allied service sectors.

 

“We also urge that units with fewer than 20 employees, which form the majority, are not left behind. These units must be included under the scheme benefits,” it said in a statement.

 

On the other hand, Left-affiliated trade unions have expressed grave ‘concerns’ regarding the scope of the scheme. Case in point, Tapan Sen, general secretary, Centre of Indian Trade Unions (CITU), says that these incentive schemes have turned out to be schemes subsidising investment costs and production costs of corporates—both domestic and foreign. Earlier, the PLI scheme was launched with a claim to create six million jobs and to increase the contribution of the manufacturing sector’s share to the GDP to 25 per cent.

 

“Contrary to the claimed target, even 7 lakh jobs are not created. The share of contribution of the manufacturing sector to GDP has dipped to 14.2 per cent in 2025. Further, the government’s reply to Parliament on the scheme revealed that while the scheme outlay is Rs 1.97 trillion, the additional investment made by the beneficiaries was hardly Rs 1.76 trillion,” he added.

Way out

“The scheme focuses on supply rather than addressing weak demand. This is unfortunate because India’s job crisis stems from low demand, especially outside the top 10 per cent of consumers. Recovery in demand has been patchy, with real wages hardly showing any increase. Without demand growth, firms won’t expand or hire, no matter the subsidy. That has been our learning from the previous Atmanirbhar Bharat Rojgar Yojana as well,” said a labour economist, requesting anonymity.

 

Echoing similar views, Mehrotra adds that supporting cluster development would have been wiser. India’s 5,500 manufacturing clusters, especially those tied to textiles, garments, food processing, leather footwear, and furniture, are key employment drivers.

 

“Strengthening infrastructure, credit access, and market linkages in these clusters would generate more jobs across both organised and unorganised sectors. Investment in tier-II and tier-III towns where these clusters thrive could also have spurred growth,” he added.