Employment Linked Incentive (ELI) Scheme Overview

The Employment Linked Incentive (ELI) Scheme aims to boost employment generation. Despite its ambitious goals, the scheme faces criticism over its approach and potential implications for the labor market.

Key Concerns

• Employer-Centric Approach:
  • The ELI Scheme focuses on providing fiscal incentives to employers, particularly in the manufacturing sector, to create jobs.
  • This strategy may exacerbate existing capital-labor asymmetries and increase wage gaps, marginalizing low-skilled and informal workers.
• Skill Mismatch:
  • The Economic Survey 2024-25 highlights a severe skill mismatch, with only 8.25% of graduates employed in roles matching their qualifications.
  • An overwhelming 53% of graduates and 36% of postgraduates are underemployed in semi-skilled or elementary jobs.
• Sectoral Focus:
  • The scheme prioritizes formal sector firms, potentially excluding 90% of the workforce in the informal sector, which lacks social security and stable employment.
  • Manufacturing receives special emphasis, despite its declining employment elasticity due to automation.
• Potential Consequences:
  • The scheme may normalize disguised unemployment, affecting productivity and wages.
  • There's a risk of enterprises relabeling existing jobs as 'new employment' to claim subsidies.

Recommendations

• Investment in Skilling: Enhancing vocational training and education reforms to benefit low-skilled workers.
• Long-term Employment Opportunities: Shifting focus from short-term job creation to sustainable employment strategies that support labor rights and bargaining power.
• Inclusive Development Strategy: Avoiding headcount-focused employment drives and instead promoting equitable and sustainable development.