Employment-Linked Incentive (ELI) Scheme Explained: Benefits, Eligibility and Impact

The Employment-Linked Incentive (ELI) scheme was approved by the Union Cabinet in mid-2025 with an outlay of ₹99,446 crore, as announced in the 2024-25 Budget. The scheme aims to boost formal employment by providing financial incentives to newly hired workers and their employers. Effective from August 1, 2025, for a two-year period, it is projected to create over 3.5 crore new jobs nationwide, especially in manufacturing. It is designed to strengthen social security coverage for young workers and integrate them into the formal economy, boosting overall growth.

What are the key features of the Employment-Linked Incentive scheme?

• The ELI scheme is a national program to create formal-sector jobs across India.
• Two components:
  • Part A (Employees): New formal-sector workers (salary ≤₹1 lakh) get up to ₹15,000 (paid in two installments after 6 and 12 months of employment).
  • Part B (Employers): Firms receive ₹3,000 per month per additional worker hired, for 2 years (extended to 4 years in manufacturing). Small firms must hire 2+ new workers, larger firms 5+, to qualify.
• Eligibility: Applicable only to EPFO-registered employers and their new employees. Each new hire must remain employed for at least 6 months to qualify for incentives.
• Disbursement: Incentives are paid via direct bank transfer. Employees receive the cash installment; employers get monthly payments in their PAN-linked account after each qualifying period.

Why was the Employment-Linked Incentive scheme introduced?

• Formal jobs gap: A large share of Indian workers were in informal jobs without benefits. The ELI scheme incentivizes firms to hire formally, addressing unemployment by making entry-level jobs more attractive.
• Boost to industry: It aligns with ‘Make in India’ goals by encouraging hiring in manufacturing and other sectors. Firms get extra support to expand their workforce, which can lead to higher production and GDP growth.
• Complements past schemes: It builds on earlier programs. Unlike the 2020 ABRY (Atmanirbhar Bharat Rojgar Yojana) which subsidized EPF contributions, ELI also gives direct incentives to employees. It works alongside schemes like PLI by focusing on the labour force side of growth.

Where will the ELI scheme be implemented?

• The scheme is national, applicable in all states and union territories. Any eligible employer-employee pair across India can participate, as long as the employer is registered with EPFO.
• There is special focus on the manufacturing sector. Companies operating factories will benefit from longer incentives, but service and other sectors can also avail the scheme.
• Implementation is mainly through the EPFO’s online platform, so no physical location barriers. Businesses of any size (micro to large) nationwide are covered if they meet hiring conditions.

When was the ELI scheme launched and what is its duration?

• The scheme was announced in the Budget 2024-25, formally approved by the Cabinet on July 1, 2025, and took effect on August 1, 2025.
• Duration: Covers jobs created through July 31, 2027 (2 years). For manufacturing firms, employer benefits extend up to July 31, 2029 (4 years total).
• All enrollments and claims must be made by mid-2027; new hires after that date will not qualify for incentives.

Who are the beneficiaries of the Employment-Linked Incentive scheme?

• First-time employees: Individuals entering their first formal-sector job (salary ≤₹1 lakh) benefit by receiving up to ₹15,000. This especially helps young graduates and job-seekers with little or no prior formal work experience.
• Employers: Any EPFO-registered company that increases its net staff count qualifies. Both small enterprises (2+ new hires) and larger firms (5+ new hires) receive ₹3,000 per month for each new worker, over the scheme period.
• Manufacturing sector: While available to all industries, manufacturers gain extra advantage (longer benefit duration). This targets factories and industrial plants to expand their workforce.

How will the scheme be implemented and what is the process?

• Registration and verification: Employers register new hires on the EPFO portal and submit required details. After 6 months of continuous employment, EPFO verifies each new job to confirm eligibility.
• Incentive payouts: Once verified, incentives go via direct bank transfer. The first-time worker receives ₹15,000 in two parts (one installment after 6 months, another after 12 months, with the second half saved as provident savings). Employers get ₹3,000 per eligible worker per month (credited to their PAN-linked account) for each qualifying month.
• Monitoring: EPFO cross-checks payroll and contribution records to prevent misuse. Firms must maintain documentation for audits. This oversight ensures that only genuine new jobs (not temporary hires) trigger payments.

What is the significance of the ELI scheme?

• Large-scale employment: Aims to create tens of millions of jobs. New salaries boost demand and can stimulate growth across sectors.
• Formalization: Encourages informal workers to join the EPFO system, expanding social security (pensions, healthcare) and broadening the tax base for the government.
• Industrial growth: Extra incentives for manufacturing firms support expansion and align with ‘Make in India’. This can attract investment and build a stronger industrial base.
• Youth inclusion: By targeting first-time jobs, the scheme helps reduce graduate unemployment and empowers young workers with stable incomes, benefiting the broader economy.

What are the limitations and challenges of the ELI scheme?

• Limited scope: Only EPFO-covered formal jobs qualify, leaving most of the informal workforce (agricultural, gig sector, etc.) without direct benefits.
• Implementation hurdles: Verifying millions of new hires creates administrative strain and risk of abuse (fake or short-term jobs). Some firms and workers may also be unaware of or unable to access the scheme, limiting its reach.
• Employer challenges: Smaller firms may struggle with the hiring thresholds. Some companies might hire extra staff to claim benefits and then lay them off after payments end, risking job stability.
• Fiscal pressure: The scheme’s large budget (~₹100,000 crore) could strain finances if outcomes fall short. A shortfall in jobs would mean paying high costs for limited benefits.

What is the way forward for the ELI scheme?

• Outreach and user-friendliness: Conduct nationwide awareness campaigns so firms and workers know about ELI. Simplify the registration and claim process (e.g. a one-stop digital portal) to boost participation.
• Skill linkage: Align the scheme with vocational training programs so recruited workers have industry-ready skills, reducing onboarding time and increasing productivity.
• Monitor and adapt: Continuously track job creation data. Use feedback to tweak the scheme (extending deadlines or adjusting incentives) if certain sectors or areas lag.
• Coordination: Engage state governments and industry bodies. States could offer additional local incentives or infrastructure support. Working closely with stakeholders ensures a more effective rollout.

How does the ELI scheme compare with previous employment programs?

• The ELI scheme is much larger in scale than ABRY, with a far bigger budget and higher job target.
• Unlike ABRY, which only paid employer contributions, ELI also directly rewards employees. This dual approach targets both supply (workers) and demand (firms) sides of employment.
• ELI extends benefits longer (4 years in manufacturing) and covers a higher salary range (up to ₹1 lakh) than ABRY (which covered wages up to ₹15,000), making it broader in coverage.

Conclusion

The ELI scheme is one of India’s most ambitious employment programs, with a massive budget and focus on first-time formal jobs. If implemented effectively, it could greatly expand the formal workforce and stimulate economic growth. Its dual incentives (to employees and employers) make it a novel policy. However, success hinges on careful execution and genuine job creation (not short-term hires). The scheme marks a major shift toward incentivizing job creation in India.

Q. Critically analyze the employer and employee incentives under the ELI scheme and their potential impact on formal job creation. (250 words)