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Employment Linked Incentive Scheme
Context:
- The Finance Minister of India announced three employment-linked incentive (ELI) schemes for two years and an internship programme in partnership with India Inc. for five years in the Union Budget for 2024-25
- The scheme aims to push employment in manufacturing and job creation in formal sectors of the economy.
About the Scheme:
- The Union Budget allocates ₹2 lakh crore for employment and skilling schemes, including three “employment-linked incentive” schemes under the Prime Minister’s package, aimed at increasing EPFO enrollment.
- First-Time Employment Scheme:
- Duration: 2 years for enrollment, 3 years for expenditure.
- Benefits: Newly joined employees will receive a direct benefit transfer equivalent to one month’s salary, capped at ₹15,000, distributed in three instalments. This scheme is expected to benefit approximately 210,000 individuals.
- Eligibility: First-time employees who enrol under the Employees’ Provident Fund (EPF) and earn less than ₹1 lakh per month. A minimum employment period of 12 months is required; if terminated early, the subsidy must be refunded by the employer.
- Job Creation in Manufacturing Scheme:
- Duration: 2 years for enrollment, 6 years for expenditure.
- Benefits: This scheme incentivizes employers in the manufacturing sector to hire new employees, with an expected benefit for around 30 lakh individuals.
- Eligibility: Employers must engage a minimum number of first-time employees based on previous EPF coverage.
- Support to Employers Scheme:
- Duration: 2 years for enrollment, 6 years for expenditure.
- Benefits: This scheme covers additional employment across all sectors for salaries up to ₹1 lakh per month, with the aim of incentivizing the hiring of around 50 lakh persons.
- Eligibility: Similar to the other schemes, it focuses on employers who meet specific hiring thresholds.
Along with it, the 3 schemes and an internship programme are also being supported by the Govt.
Internship in Top Companies
- This scheme offers internships to 1 crore youth in 500 top companies over 5 years.
- Interns will receive ₹5,000 per month and a one-time ₹6,000 assistance.
- Companies must cover training costs and 10% of internship costs from CSR funds.
Need for the ELI:
- According to the Economic Survey for 2023-24, Inadequate employment generation and loss of jobs in the informal sector.
- The employment data underscores the importance of creating jobs in the formal sector.
Issue with earlier government schemes and initiatives :
The earlier approach of the government was to increase the GDP expecting trickle down economics to take its course, resulting in job creation eg .
- Make in India which was launched in 2014, was this quintessential example that aimed to spur manufacturing in the hope that it would make companies hire large numbers of workers.
- In 2019, the government made a sudden off-Budget announcement of a big cut in corporate tax rates for companies, again in the hope that it would lure industry to invest more, which would then trickle down to more jobs.
- In 2020, the government announced a new production linked incentive (PLI) scheme of a whopping ₹2 lakh crore as financial incentives to be provided to companies based on the achieving of certain production targets.
- However, these incentives were not able to increase employment as expected and thus, the government felt the need for an Employment Linked Initiative scheme.
- Companies either pocketed the tax cuts without investing or they invested more in equipment than in hiring people.
- Shortage of jobs has led to reservation of jobs for locals by some states e.g. Karnataka, Haryana, Jharkhand thus leading to inter- state and social tensions which can be resolved by ELI schemes.
Challenges:
- A tripartite agreement involving the private sector, central government, and state governments is essential as
- The private sector is expected to play a larger role in employment generation, as it is the primary driver of job creation.
- Many factors affecting economic growth, job creation, and productivity fall under the jurisdiction of state governments.
- It can make Indian companies less productive and, hence, less competitive globally as according to some neo-liberal economists technology-led productivity and efficiency are the cornerstones of economic development.
- Dependence on EPFO Enrollment: The scheme’s reliance on EPFO enrollment could be challenging in sectors with prevalent informal employment.
- Transitioning informal sector workers to formal employment will need considerable outreach and support.
Way forward
- Efficient implementation of e-Shram portal which is the first-ever national database of unorganised workers to increase enrolment of unorganised workers in EPFO.
- Focus on urban female labour force employment because as of now Rural female is driving the growth of LFPR.
