By Shivanand Pandit (Goa)
On July 1, 2025, the Union Cabinet approved the Employment-Linked Incentive (ELI) scheme, allocating ₹99,446 crore to spur job creation to generate up to 35 million jobs over the next two years. This initiative underscores the need for India’s economic growth to translate into meaningful employment opportunities. According to the latest Periodic Labour Force Survey monthly bulletin, female labour force participation remains low at 33.2%, well below the global average, while youth unemployment among those aged 15–29 is at 15%, compared to the overall unemployment rate of 5.6%. Furthermore, most workers are still employed in the informal sector, which generally offers low wages.
Globally, wage-linked incentive schemes have been successful in boosting employment. Germany, for example, offers employer subsidies for apprenticeships and long-term hires, while South Korea provides targeted wage support to encourage the employment of both young and older workers. Singapore links financial assistance to skills development and employee retention, and the United States incentivises the hiring of disadvantaged groups through the Work Opportunity Tax Credit. India’s ELI scheme builds on these international best practices, adapting them to local conditions such as a large informal workforce, a favourable demographic dividend, and a growing digital infrastructure.
What is the ELI Scheme?
The scheme aims to promote employment generation, improve employability, and strengthen social security across all sectors, with a particular emphasis on manufacturing. Announced in the Union Budget 2024–25 as part of the Prime Minister’s package of five initiatives, it seeks to create employment, skilling, and other opportunities for 4.1 crore youth, with a total allocation of ₹2 lakh crore.
Under the scheme, first-time employees will receive one month’s wage (up to ₹15,000), while employers will be provided incentives for two years for generating additional employment. For the manufacturing sector, these benefits will be extended for an additional two years. The scheme will apply to jobs created between August 1, 2025, and July 31, 2027.
The scheme is structured in two parts:
Part A: Incentives for First-Time Employees: Targeted at first-time employees registered with the EPFO, this component will provide a one-month EPF wage of up to ₹15,000, disbursed in two instalments. Employees with monthly salaries up to ₹1 lakh will be eligible. It is expected to benefit 1.92 crore first-time workers, facilitating their integration into the formal economy while ensuring a social security safety net.
Part B: Support for Employers: This component incentivises the generation of additional employment across all sectors, with a special focus on manufacturing. Employers will receive incentives of up to ₹3,000 per month for each eligible employee for two years, covering employees with monthly salaries up to ₹1 lakh. EPFO-registered establishments must hire at least two additional workers if they have fewer than 50 employees, or at least five additional workers if they have 50 or more employees, with a mandatory retention period of six months. In the manufacturing sector, these incentives will be extended to the third and fourth years as well.
Payments under Part A will be made directly to first-time employees through the Direct Benefit Transfer (DBT) mechanism using the Aadhaar Bridge Payment System (ABPS). Payments under Part B will be credited directly to employers’ PAN-linked accounts.
A powerful instrument
Employment subsidies are a powerful tool for addressing short-term unemployment, particularly during economic downturns such as recessions or pandemics. By subsidising wages, governments can encourage firms to hire workers who might otherwise remain unemployed. Targeted subsidies can be especially effective, focusing on groups such as youth, women, or the long-term unemployed, thereby promoting social mobility and reducing income inequality. For example, initiatives aimed at integrating young workers into the labour market can help prevent the damaging effects of prolonged unemployment among the youth.
These subsidies can also be designed to stimulate job creation in economically underdeveloped regions, encouraging companies to establish operations there and boosting local employment. This approach helps bridge regional economic disparities and ensures a more equitable distribution of job opportunities across the country. By supporting employment in lagging areas, such measures contribute to balanced regional development and strengthen social cohesion.
Moreover, wage subsidies temporarily increase the purchasing power of workers who might have otherwise been unemployed, stimulating demand for goods and services and supporting short-term economic growth. This boost in consumption can have a positive multiplier effect on the broader economy. Compared to more complex and time-consuming structural reforms, employment subsidies are often seen as a relatively simple and swift solution to rising unemployment, providing governments with an effective way to stabilise the labour market during crises.
Potential risks
Although subsidies may temporarily boost employment, they can place a heavy strain on government finances. Long-term or large-scale subsidy schemes can burden national budgets, especially in countries with high public debt or limited fiscal capacity. In such cases, governments might have to cut funding for essential sectors like education or healthcare to sustain these programs.
In some situations, subsidies can create “zombie jobs” — roles that would not survive in a competitive environment but persist solely due to government support. These jobs may offer minimal long-term value to the economy, ultimately weakening the competitiveness and dynamism of the labour market.
If subsidies are not carefully targeted, they may end up benefiting businesses or workers who do not need assistance. For example, highly profitable large companies could receive subsidies unnecessarily, wasting public resources. Similarly, workers in sectors with already strong demand might gain subsidies without truly requiring them, undermining the program’s effectiveness.
The scheme’s emphasis on the manufacturing sector underscores its pivotal role in the government’s employment strategy. While targeted initiatives like the ELI scheme are expected to help absorb large numbers of low-skilled workers and promote formalisation, they alone will not resolve the deep-seated structural barriers hindering large-scale, quality job creation in the country. Challenges such as rigid labour regulations and inadequate skilling outcomes continue to hamper employment growth.
According to the recently released Skills for the Future report by the Institute for Competitiveness, nearly 88% of the workforce in 2023–24 was engaged in low-competency occupations, and only 9.76% of the population had attained education beyond the secondary level. This widespread skills mismatch, coupled with limited access to technical and vocational education, has further exacerbated the issue.
Therefore, the success of the ELI scheme will hinge on the availability of a job-ready workforce and a robustly expanding manufacturing sector. In this context, the PM Internship Scheme aims to help bridge the skills gap. Earlier this year, the Union Cabinet approved plans to upgrade 1,000 Industrial Training Institutes over five years, alongside the establishment of five National Centres of Excellence for Skilling. While these steps are encouraging, experience suggests that such efforts often struggle due to outdated curricula and weak links between academia and industry. Hence, schemes to boost job opportunities for India’s young workforce must be complemented by measures to strengthen the skilling ecosystem and by policy reforms that tangibly improve the business environment, particularly for small- and medium-sized enterprises.
Strategies for Sustainable Job Creation
Long-term employment growth depends on building a workforce that is adaptable and skilled for the industries of tomorrow. Governments and businesses should prioritise education, vocational training, and lifelong learning to prepare workers for sectors such as technology, green energy, and healthcare. Alongside this, flexible labour markets — supported by reforms like improved unemployment benefits, job mobility measures, and support for gig or part-time workers — can help employers and employees adjust to changing economic conditions without becoming locked into unsustainable employment patterns. Active Labour Market Policies, including career counselling, retraining programs, and job placement services, can further support workers in transitioning into meaningful, long-term roles that match their skills.
Rather than relying on temporary subsidies, governments should focus on creating an environment that encourages private sector investment, innovation, and entrepreneurship through tax incentives, streamlined regulations, and support for start-ups. When subsidies are used, they should include clear exit strategies and gradual phase-outs to avoid sudden job losses and encourage businesses to transition toward sustainable employment practices. Targeted interventions in high-growth industries, such as green technology, digital transformation, and the care economy, can build sectors with the potential to generate stable, long-lasting job opportunities while addressing emerging social and environmental challenges.
Additionally, inclusive policies that ensure equitable job access for women, minorities, and people with disabilities are crucial for making growth broad-based and socially sustainable. Investing in infrastructure projects — transportation, housing, and technology — can create immediate employment in construction and engineering while delivering lasting benefits to local communities and economies. Finally, governments should encourage Corporate Social Responsibility by incentivising businesses to invest in community development, provide training, and support stable, long-term jobs, ensuring a stronger and more resilient employment landscape for the future.
To conclude, employment subsidies may offer short-term relief in tackling unemployment, but they are no cure-all for sustainable job creation. Lasting employment growth demands confronting the structural foundations of the economy head-on — investing in robust skill development, driving private sector investment, and strengthening industry-specific capabilities. If subsidies are deployed, they must be laser-focused, fully transparent, and strictly time-limited to prevent dangerous dependency and protect the integrity of the labour market. Over-reliance on subsidies risks distorting incentives and stifling genuine economic dynamism. In the end, the most resilient path to job creation is building an environment where businesses can truly prosper, workers can continually enhance their skills, and the gains of economic growth reach everyone. Only by fostering innovation, removing needless barriers, and empowering the workforce can we ensure employment opportunities are durable and inclusive, rather than propped up by temporary fixes.
