Employment push: New job scheme must be supported by structural reforms

The Union Cabinet on Tuesday approved the employment-linked incentive (ELI) scheme, first announced in the 2024-25 Union Budget. The scheme reflects an acknowledgement that India’s economic growth must translate into gainful job opportunities. According to the latest monthly bulletin of the Periodic Labour Force Survey, the female labour force participation rate was 33.2 per cent, far below the global average, while the youth unemployment rate (aged 15-29) was 15 per cent, compared with the overall unemployment rate of 5.6 per cent. Besides, most people are engaged in the informal sector, which is low-paying.

 

The ELI scheme, aimed at improving formal employment, has two parts. The first part involves offering a one-month employees’ provident fund wage, up to ₹15,000, to first-time employees registered with the Employees’ Provident Fund Organisation. Employees with salaries up to ₹1 lakh will be eligible, and the amount will be paid in two instalments. The scheme is expected to benefit around 19.2 million first-time employees, and also aims to inculcate saving habits among workers. The second part involves financial support to employers by sharing some of the cost burden for every additional job generated. The government will give an incentive to employers — up to ₹3,000 per month— for each additional employee for two years. In the manufacturing sector, it will be extended till the fourth year. The nudge to private companies towards formal job creation is expected to create an additional employment for nearly 26 million people. With an outlay of ₹99,446 crore, the scheme is expected to facilitate creating more than 35 million jobs in the country over two years. 

 

The scheme’s focus on the manufacturing sector highlights its centrality in the government’s employment strategy. While it is hoped that the manufacturing sector, supported by targeted schemes like the ELI scheme, will help absorb large numbers of low-skilled workers and drive formalisation, it will not be sufficient to address the deep-rooted structural challenges that constrain large-scale, quality employment generation in the country. Structural bottlenecks, from rigid labour regulations to poor skilling outcomes, continue to pose challenges in employment generation. The “Skills for the Future” report, recently released by the Institute for Competitiveness, finds that in 2023-24, around 88 per cent of the workforce was engaged in low-competency occupations. Further, only 9.76 per cent of the population had completed education beyond secondary level.

 

The widespread skill mismatch and the low penetration of technical and vocational education have further compounded the problem. Thus, the success of the ELI scheme will depend on the availability of a job-ready workforce and a rapidly expanding manufacturing base. In this regard, the PM Internship Scheme is also aimed at bridging the skill gap. Earlier this year, the Union Cabinet approved a proposal for upgrading 1,000 Industrial Training Institutes over five years, along with the creation of five National Centres of Excellence for Skilling. While it is a step in the right direction, experience shows that such efforts often falter owing to outdated curricula and poor academia-industry linkages. Thus, the schemes aimed at increasing job opportunities for India’s young workforce will need to be supported by improving the skilling environment and policy reforms to materially improve the business environment, particularly for the small- and medium-sized businesses.