Challenges And Opportunities In The Employment-Linked Incentive (ELI) Scheme 2024: A Mission-Mode Analysis

Policy Update
Nandini Arya

Background

The Employment-Linked Incentive (ELI) Scheme is a major initiative launched by the Government of India to create more job opportunities and improve livelihoods across the country. This scheme was introduced as part of the Union Budget 2024-25, under Prime Minister Narendra Modi’s package of five schemes aimed at providing employment, skilling, and other opportunities for 4.1 crore youth over a five-year period. The package has a central outlay of Rs. 2 lakh crore, highlighting the government’s strong commitment to tackling unemployment and boosting economic recovery, especially after the challenges posed by the COVID-19 pandemic.

About the Scheme

The government is set to introduce three new schemes under the Employment-Linked Incentive (ELI) initiative. These schemes focus on workers who are newly registered with the Employees’ Provident Fund Organisation (EPFO) and aim to support both employees and employers in different ways:

Scheme A: First Timers
This scheme is designed for people who are entering the formal workforce for the first time. If they are registered with the EPFO, they will receive a one-month wage of up to Rs. 15,000, paid out in three installments directly into their accounts. To qualify, their monthly salary must be up to Rs. 1 lakh. This scheme is expected to benefit around 210 lakh young people.
Scheme B: Job Creation in Manufacturing
This scheme targets the manufacturing sector and offers incentives for hiring new employees. Both the employee and the employer will receive financial support related to their EPFO contributions during the first four years of employment. This scheme is expected to benefit 30 lakh young workers and their employers.
Scheme C: Support to Employers
This scheme is focused on helping employers across all sectors who create new jobs. For each new employee earning less than Rs. 1 lakh per month, the government will reimburse the employer up to Rs. 3,000 per month for two years towards their EPFO contributions. This scheme aims to encourage the employment of 50 lakh additional workers.

These schemes are designed to encourage companies to hire more employees, which will help create jobs and boost the economy.

Functioning

The ELI Scheme will be rolled out in a mission mode, meaning it will be implemented quickly and closely monitored to ensure it meets its goals. The government has set up a system to track the scheme’s progress and make sure that the incentives provided result in real job creation.

Companies that take part in the scheme will receive financial rewards based on the number of new jobs they create. This approach is flexible, allowing the scheme to adapt to the needs of different industries and regions. The ultimate aim is to create a large number of jobs, especially in sectors that can absorb a significant workforce.

Impact

The Employment-Linked Incentive (ELI) Scheme is expected to have a profound and far-reaching impact on the Indian economy and society:

Job Creation: The primary goal of the ELI Scheme is to create millions of new jobs across various sectors, and its design directly incentivizes companies to hire more workers. By offering financial rewards tied to employment, the scheme motivates businesses to expand their workforce, which is particularly crucial in a country with a large and growing labor force. The resulting increase in employment will not only reduce unemployment rates but also play a key role in supporting the overall economic recovery, especially in the wake of disruptions caused by the COVID-19 pandemic. These new jobs will provide much-needed income to families, helping to alleviate financial strain and contribute to national productivity. Furthermore, by providing quality job opportunities within the country, the scheme can help curb the ongoing issue of brain drain. As skilled professionals often leave the country in search of better opportunities abroad, the ELI Scheme aims to retain talent by creating competitive employment prospects domestically, thereby ensuring that India’s best and brightest contribute to the national economy.
Economic Growth: With more people employed, the disposable income of households is expected to rise, leading to an increase in consumer spending. This boost in spending will have a ripple effect across the economy, stimulating demand for goods and services, which in turn will encourage businesses to invest and expand. As companies grow, they become more competitive, both domestically and internationally, further driving economic progress. The ELI Scheme is not just about creating jobs but also about fostering a more dynamic and resilient economy that can better withstand future challenges. By bolstering economic activity, the scheme contributes to the long-term growth and development of the country.
Social Benefits: The ELI Scheme is also expected to have significant social benefits, particularly in regions that have been economically disadvantaged. By improving access to employment opportunities, the scheme can lift many people out of poverty, offering them a pathway to a better quality of life. Employment provides financial stability, which is essential for meeting basic needs such as food, housing, and healthcare. As more people gain access to stable jobs, the overall standard of living in these regions will improve, leading to greater social stability. The reduction in poverty and economic disparity can also help reduce social tensions and promote a more inclusive society.
Youth Empowerment: A key focus of the ELI Scheme is on skilling and providing employment opportunities for the youth, who make up a significant portion of India’s population. By targeting this demographic, the scheme aims to equip young people with the skills and opportunities they need to actively participate in the labor market. Empowering the youth with jobs and skills not only helps them build a secure future for themselves and their families but also contributes to the country’s economic growth. With a substantial number of jobs directed toward the younger population, the scheme addresses the pressing issue of youth unemployment. This focus on the youth is crucial as they are the drivers of innovation and future growth. By integrating them into the workforce, the scheme ensures that the next generation is well-prepared to contribute to and sustain India’s economic progress.

Potential Issues

Despite the promising potential of the Employment-Linked Incentive (ELI) Scheme, several challenges could impact its effectiveness and success:

Implementation Hurdles: The ELI Scheme’s rapid rollout in a mission mode poses significant coordination challenges. Implementing such a large-scale scheme involves multiple stakeholders, including central and state governments, businesses, and various agencies. Ensuring that all these parties work together smoothly can be difficult. According to a report by the World Bank on implementing large-scale employment schemes, effective coordination and clear communication channels are critical for success. If these are not well-established, it can lead to delays, inconsistencies, and inefficiencies in the scheme’s execution. Additionally, maintaining transparency and accountability is crucial to prevent misuse of funds and ensure that the incentives reach their intended recipients. Inadequate oversight can result in fraud or mismanagement, undermining the scheme’s objectives.
Sectoral Imbalance: One of the risks associated with the ELI Scheme is that some sectors may benefit disproportionately compared to others. For instance, industries with higher hiring capacities or better access to resources might be more successful in leveraging the incentives than smaller or less developed sectors. A study by the International Labour Organization (ILO) highlights that sector-specific challenges can lead to uneven distribution of employment benefits. This imbalance could result in job creation that is concentrated in particular industries or regions, leaving others behind. Ensuring equitable distribution across various sectors, including those in rural and underdeveloped areas, is essential for the scheme’s success. It is important that the scheme’s design includes mechanisms to address these disparities and promote balanced growth.
Sustainability of Jobs: Another major concern is the sustainability of the jobs created through the ELI Scheme. While the scheme aims to generate new employment opportunities, there is a risk that some of these jobs may be temporary or of low quality. The European Foundation for the Improvement of Living and Working Conditions (Eurofound) notes that temporary or precarious employment can lead to economic insecurity for workers and may not contribute to long-term stability. To achieve the scheme’s objectives, it is vital that the jobs created are not only numerous but also sustainable and provide real economic benefits. Ensuring that these jobs offer fair wages, opportunities for career advancement, and stability will be key to the scheme’s success. Without these factors, the scheme may fall short of its goal to provide meaningful and lasting improvements in employment conditions.
Potential for Underpayment: A significant issue that could arise from the ELI Scheme is the potential for firms to underpay employees. Since the scheme provides financial incentives based on the number of employees hired, some companies might prioritize quantity over quality, focusing on hiring more workers at lower wages to maximize their benefits from the scheme. This could lead to a situation where employees are paid less than they deserve, undermining the goal of providing secure and fair employment. According to research by the International Labour Organization, wage suppression in similar incentive schemes has been observed when there is insufficient regulation to protect workers’ rights. It’s crucial that the ELI Scheme includes strict guidelines to prevent such exploitation and ensure that workers receive fair compensation for their labor.
Ignorance of Socio-Economic Disadvantages: Another critical issue is the potential for the scheme to overlook the socio-economic disadvantages of certain groups of workers. In the competitive job market, dominant social groups might have better access to job opportunities, leaving marginalized or economically disadvantaged communities at a disadvantage. A study by the Economic Policy Institute highlights that without targeted interventions, employment schemes can inadvertently reinforce existing social inequalities. If the ELI Scheme does not specifically address these disparities, it risks benefiting those who are already in relatively better positions while leaving vulnerable populations behind. To avoid this, the scheme should include provisions that promote inclusivity and ensure that employment opportunities are accessible to all, regardless of socio-economic background.

Way Forward

To ensure the success of the Employment-Linked Incentive (ELI) Scheme, the government needs to take several important steps. First, there should be strong coordination between central and state governments, as well as industry partners. Clear guidelines and effective communication channels will help make sure the scheme is implemented smoothly across the country. It’s also important that the scheme benefits all sectors and regions, especially rural and underdeveloped areas, so that no one is left behind.

Regular monitoring of the scheme’s progress is necessary to see what’s working and what isn’t. This way, the government can make changes if needed to keep the scheme effective and relevant. Investing in training and resources for industries and workers will help ensure that the jobs created are stable and match the needs of today’s economy. Additionally, the Union Minister has highlighted the need for a widespread outreach and awareness campaign to inform people, especially those who will benefit most from the scheme, about the opportunities available. By making sure more people know about the scheme, the government can help more individuals take advantage of these new job opportunities.

Self- Analysis

The Employment-Linked Incentive Scheme is a commendable initiative by the government, designed to tackle one of the most pressing issues facing the country: unemployment. By directly linking incentives to job creation, the scheme addresses the root cause of financial instability for many families. However, for the scheme to be truly successful, it must be implemented with careful planning and coordination. The government’s focus on outreach and awareness is a positive step, but it must be backed by tangible support for industries and workers. The emphasis on youth employment is particularly promising, as it recognizes the importance of empowering the younger generation to drive the country’s future growth.

While the ELI Scheme holds great potential, its success will ultimately depend on how well it is executed and whether it can adapt to the challenges that arise. With the right approach, this scheme could be a game-changer for India’s economy and its people.

References

Acharya, M. (2024, July 24). Budget 2024: Full List of Schemes Announced in Budget 2024-25 By Finance Minister. ClearTax. Retrieved August 14, 2024, from https://cleartax.in/s/full-list-of-schemes-announced-in-budget-2024-by-finance-minister
Deccan Chronicle. (2024, August 6). Employment-Linked Incentive Scheme to be Implemented Expeditiously in Mission-Mode: Centre. Deccan Chronicle. https://www.deccanchronicle.com/nation/employment-linked-incentive-scheme-to-be-implemented-expeditiously-in-mission-mode-centre-1814588
The Economic Times. (2024, August 6). Labour minister Mandaviya calls for expeditious implementation of employment-linked incentive scheme on a mission mode. The Economic Times News. https://economictimes.indiatimes.com/news/india/labour-minister-mandaviya-calls-for-expeditious-implementation-of-employment-linked-incentive-scheme-on-a-mission-mode/articleshow/112321398.cms?from=mdr
Jagran Josh. (2024, July 23). Budget 2024 for Employment and Skilling: Check PM’s 5 Schemes with Details. Jagran Josh. https://www.jagranjosh.com/general-knowledge/budget-2024-employment-skilling-pm-schemes-1721737026-1
PIB. (2024, July 24). Prime Minister’s Package worth Rs. 2 Lakh Crore to Boost Employment and Skilling for 4.1 Crore Youth. Press Release. https://pib.gov.in/PressReleseDetail.aspx?PRID=2036647#
PIB. (2024, August 6). Employment-Linked Incentive Scheme to be Implemented Expeditiously in Mission-Mode: Dr. Mandaviya. Press Release- Press Information Bureau. https://pib.gov.in/PressReleasePage.aspx?PRID=2042067#:~:text=The%20ELI%20Scheme%20is%20designed,employment%20opportunities%20and%20enhancing%20livelihood.

About the Contributor- Nandini Arya is a Research Intern at IMPRI with a background in Government Administration, having graduated with a BA (Hons) from MIT-WPU, Pune. She is set to begin her Master’s in Public Policy at Queen Mary University of London.

Acknowledgement- The author would like to thank Ms Aasthaba Jadeja and Ms Meenu Mohan for reviewing their article.