Empowering India’s Future: The Union Budget 2024's Bold Employment Linked Incentive Scheme - IMPRI Impact And Policy Research Institute

Policy Update
Ishan Singh

Background

The Employment Linked Incentives (ELI) scheme, introduced in the Union Budget 2024, represents a transformative policy aimed at addressing India’s growing employment crisis by incentivizing private sector job creation and skill development. Amid global economic uncertainties, rapid technological changes, and a dynamic job market, the Indian government is focusing on creating high-quality jobs as a central policy goal. The ELI scheme aims to boost private sector involvement in job creation by offering incentives linked to new job creation, job retention, and upskilling efforts.

Despite India’s significant demographic advantage with a young population, job creation has lagged. As of 2023, over 47% of the working-age population either faces unemployment, underemployment, or works in low-skill jobs. This situation not only deepens economic inequality but also drives migration from rural to urban areas. The ELI scheme is intended to address these issues by promoting employment growth and modernizing the labour market.

The scheme introduces three new initiatives under the Employment Linked Incentive umbrella, as part of a broader package of five schemes announced in the Union Budget for 2024-25. This package is designed to support employment, skill development, and other opportunities for 4.1 crore youth over the next five years, with a central allocation of Rs. 2 lakh crore. This ambitious plan aims to make a significant impact on the Indian job market and contribute to the overall economic growth of the country.

Three Schemes as a part of Employment Incentives

These schemes include: Scheme A (one month’s salary for freshers), Scheme B (job creation in manufacturing), and Scheme C (support to employers), which are designed to benefit first-time employees enrolling in the EPFO.

Scheme A: This scheme offers a subsidy of one month’s wages, up to Rs 15,000, for first-time employees entering the workforce with a salary of less than Rs 1 lakh per month. The subsidy will be paid in three installments. To receive the second installment, the employee must complete a compulsory online Financial Literacy course. If the employment ends within 12 months, the subsidy must be refunded by the employer. This scheme is applicable for two years.

Scheme B: Applicable to all corporate and non-corporate employers with a three-year track record of EPFO contributions, this scheme targets substantial hiring of first-time employees in the manufacturing sector. Employers must hire either 50 new employees or 25% of their current workforce, whichever is higher, to be eligible.

Scheme C: This scheme supports employers who increase their workforce above the baseline by at least two employees (for those with fewer than 50 employees) or five employees (for those with 50 or more employees) and maintain this level.

The scheme applies to employees with salaries not exceeding Rs 1 lakh per month. For two years, the government will reimburse EPFO employer contributions up to Rs 3,000 per month for the additional employees hired in the previous year. This does not apply to employees covered under Scheme B.

Skilling Initiatives

The new centrally sponsored scheme, under the Prime Minister’s package, is set to skill 20 lakh young individuals over the next five years, targeting a future-ready workforce. This initiative comes at a crucial time, as the job market demands advanced skills and higher standards of quality in training. A significant highlight is the comprehensive upgrade of 1,000 Industrial Training Institutes (ITIs) through a hub-and-spoke model, aimed at modernizing their curriculum, infrastructure, and capacity. With a total investment of ₹60,000 crore—₹30,000 crore from the central government, ₹20,000 crore from state governments, and ₹10,000 crore from industry and CSR contributions—the program ensures robust collaboration across sectors.

The modernization effort will involve redesigning existing courses, launching new ones tailored to industry needs, and offering short-term specialized training at hub ITIs. The capacity of five national institutes for trainer training will also be enhanced to ensure that trainers are well-equipped to deliver high-quality education. This bold move aims to bridge the gap between traditional vocational training and the evolving demands of industry, empowering 20 lakh students with the skills required for modern jobs.

In tandem with this, the government is revising the Model Skill Loan Scheme to make education more accessible. Under the updated scheme, students will be able to secure loans of up to ₹7.5 lakh, backed by a government-promoted guarantee fund, benefiting 25,000 students each year. These initiatives reflect a firm commitment to empowering India’s youth with the skills and financial support necessary for building sustainable careers, marking a historic moment for ITIs and vocational education in the country.

Other Initiatives

Supporting Higher Education

Financial support for loans up to ₹10 lakh for higher education in domestic institutions.
Expands educational opportunities for youth, making higher education more accessible.

Internship in Top Companies

Internships for 1 crore youth over five years in 500 top companies.
Each intern will receive a ₹5,000 monthly allowance and ₹6,000 one-time assistance.
Companies will cover training costs and contribute 10% of the internship expenses through CSR funds.
The program offers 12 months of real-life business exposure, bridging the gap between academic knowledge and industry requirements.
Empower youth with practical experience, enhancing employability and preparing them for sustainable careers.

Empowering Women

Focus on increasing women’s workforce participation through:
- Establishing hostels to support working women.
- Launching women-specific skilling programs in partnership with various organizations.
Aims to strengthen Nari Shakti by promoting gender equality and boosting women’s employment.

Critical Mineral Mission

A mission to develop a skilled workforce for domestic production, recycling, and acquisition of critical minerals overseas.
Focus on advanced training to drive innovation and technology in the mineral sector, ensuring mineral security and creating jobs.

Services to Labor

Integration of the e-shram portal with other databases to create a one-stop solution for workers.
This platform will address labour market needs, provide skilling opportunities, and connect job seekers with potential employers.
It aims to support labourers and stimulate economic growth through an efficient workforce development system.

Inclusive Human Resource Development and Social Justice

The government emphasizes inclusive growth with the saturation of educational and health programs for all, particularly youth, women, and the poor.
Focus on craftsmen, artisans, self-help groups, and entrepreneurs through initiatives like:
- PM Vishwakarma, PM SVANidhi, National Livelihood Missions, and Stand-Up India.
The Purvodaya initiative targets comprehensive development in eastern states like Bihar, Jharkhand, and West Bengal, including the establishment of an industrial node at Gaya.
These efforts aim to boost economic activities, equip the youth with new skills, and create more employment opportunities.

Impact of the ELI Scheme

The broader impact of the Employment Linked Incentives scheme can be evaluated across economic, social, and workforce dimensions.

Economic Impact: The Employment Linked Incentive (ELI) scheme is proving to be a significant catalyst for economic growth. By incentivizing businesses to formalize employment, the scheme has contributed to a positive shift in the economic landscape. Formal employment ensures that workers have stable incomes, which increases their ability to spend on goods and services. This rise in consumption feeds into the broader economy, creating a multiplier effect where higher demand stimulates production, leading to further job creation. As more individuals participate in the formal economy, tax revenues also increase, providing the government with additional resources to invest in public infrastructure and services.
Labour Market Transformation: The ELI scheme has played a pivotal role in transforming India’s labour market, especially in industries traditionally dominated by informal work. In many sectors, workers have long relied on informal jobs that offer little job security, low wages, and no access to social protections like pensions or healthcare. The incentives provided by the ELI scheme are encouraging employers to bring these workers into the formal economy, where they can benefit from more reliable income, better working conditions, and legal protections. This formalization also leads to improved wage standards, ensuring that workers are compensated fairly for their labour.
Gender and Social Impact: One of the most promising aspects of the ELI scheme is its potential for fostering social inclusion, particularly by targeting underrepresented groups such as women and marginalized communities. By offering businesses incentives to hire women, the scheme is encouraging greater gender diversity in sectors where women have traditionally been underrepresented. This shift has broader social implications, as more women entering formal employment can lead to greater financial independence, reduced gender disparities, and enhanced social mobility for marginalized groups. To support this, many companies are beginning to implement flexible working conditions, offering benefits like maternity leave, childcare support, and crèche facilities to ensure that women can balance work and family responsibilities.
Reduction in Youth Employment: Addressing youth unemployment is another critical focus of the ELI scheme, especially as India faces high levels of unemployment among its young population, particularly in urban areas. The ELI scheme has incentivized the private sector to hire more young workers, providing them with formal job opportunities and reducing the strain of unemployment. This focus on youth employment has the potential to enhance social stability by offering young people stable career paths and preventing the social unrest that can arise from prolonged unemployment. The ability to integrate youth into the workforce is also key to reducing economic inequality, as young workers gain the skills and experience necessary to advance in their careers.

Way Forward

To ensure the Employment Linked Incentive (ELI) scheme reaches its full potential, it’s essential to focus on creating more inclusive and widespread opportunities. Expanding the program’s reach to rural areas and smaller businesses will help bring more workers into formal employment. For women and marginalized groups, it’s important that companies follow through on offering flexible work environments, maternity leave, and childcare support. Regular monitoring of the scheme’s outcomes will ensure it stays on track and can adapt as needed. By focusing on skill development and aligning job opportunities with industry needs, the ELI scheme can continue to boost economic growth and reduce inequality for all.

References

About the Contributor – Ishan Singh, a research intern at IMPRI pursuing his bachelor’s degree in B.A. (Hons.) Political Science from Kirori Mal College, University of Delhi.

Acknowledgement – The author would like to thank Dr Arjun Kumar, who helped me throughout this article and reviewing the same.