Employment Linked Incentive (ELI) Scheme

Context

On July 2025, the Union Cabinet approved the Employment Linked Incentive (ELI) Scheme with a financial outlay of ?99,446 crore to generate over 3.5 crore jobs across India, with special emphasis on first-time employees and job creation in the manufacturing sector.

Employment Linked Incentive (ELI) Scheme

Objectives and Strategic Vision

Addressing Structural Labour Market Challenges
- Targeting low formalisation of the labour force.
- Combating sluggish employment growth in the manufacturing sector.
- Providing structured incentives for youth integration into formal workforce.
Doubling as Social Security and Financial Inclusion Reform
- Incentivising EPFO registration and continuous employment.
- Encouraging financial literacy among first-time employees.
- Ensuring savings through mandatory financial deposits.

Key features:

Part A – Incentives for First-Time Employees
- Coverage: First-time EPFO-registered employees with salaries up to ?1 lakh/month.
- Incentive: One month’s EPF wage (up to ?15,000), disbursed in two instalments:
- After 6 months of continuous service.
- After 12 months + financial literacy completion.
- Savings Link: Partial amount deposited in a savings instrument for long-term planning.
- Targeted Beneficiaries: 1.92 crore workers.
Part B – Incentives for Employers to Create and Retain Jobs
- Employer Incentive (per new hire per month):
  - ?1,000 (salary up to ?10,000),
  - ?2,000 (?10,001–?20,000),
  - ?3,000 (?20,001–?1 lakh).
Minimum hiring thresholds:
- - At least 2 new employees (staff <50),
  - At least 5 new employees (staff ?50).
- Duration: 2 years (all sectors), 4 years (manufacturing sector).
- Projected Impact: Creation of 2.6 crore jobs.

Implementation Mechanism

Disbursement Channels

- Direct Benefit Transfer (DBT)-based approach to ensure transparency.
- ABPS (Aadhaar-based) for employee incentives.
- PAN-linked accounts for employer reimbursements.

Compliance and Accountability
- Incentives linked to employee retention and continuous employment for minimum 6–12 months.
- EPFO and financial literacy as eligibility markers.

Broader Implications

Formalisation of Labour Market
- Integration of informal workers into social security mechanisms.
- Long-term impact on EPF coverage and financial inclusion.
Sectoral Focus and Economic Multiplier
- Prioritisation of manufacturing aligns with India’s production-led growth strategy.
- Encourages MSMEs and startups to expand workforce in a cost-effective manner.
Concerns Raised
- Trade unions (e.g., CITU) flagged potential misuse and inadequate accountability for employers.
- Risk of substitution effect – replacing existing workers to avail incentives.