India’s aspiration to become a $5 trillion economy faces a critical stumbling block—persistent unemployment. While headline GDP growth has averaged over 8% in recent years, job creation has lagged far behind, particularly in the formal sector. Against this backdrop, the Union government’s recent approval of the employment linked incentive scheme signals a renewed attempt to shift the needle on job generation.
Announced in the Union Budget 2024-25 with an allocation of ₹99,446 crore, the ELI scheme aims to create 3.5 crore formal jobs over a two-year period. The scheme is structured in two parts. Part A incentivises first-time job seekers by offering a wage subsidy of up to one month’s salary—capped at ₹15,000. Part B rewards employers who generate sustained employment by offering them cash incentives based on the monthly wages of new recruits.
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The structure of the scheme
Employees with monthly wages up to ₹1 lakh will be eligible under both parts. For Part A, the wage subsidy is disbursed in two tranches: the first after six months of continuous service, and the second after 12 months, provided the employee completes a financial literacy module. Importantly, a portion of this incentive will be deposited in a savings instrument, accessible only after a lock-in period—nudging beneficiaries towards financial inclusion and long-term planning.
Part B targets the supply side. Employers enrolling new workers under the Employees’ Provident Fund Organisation (EPFO) scheme will receive monthly incentives over two years: ₹1,000 for employees earning up to ₹10,000, ₹2,000 for those earning between ₹10,001 and ₹20,000, and ₹3,000 for those earning more than ₹20,000 but below ₹1 lakh. For manufacturing-sector jobs, these incentives will extend to the third and fourth years, aligning with the broader aim of boosting industrial employment.
All disbursements to employees under Part A will be made via Direct Benefit Transfer (DBT), while employer incentives under Part B will be routed to their PAN-linked bank accounts. The scheme is scheduled to run from August 1, 2025, to July 31, 2027.
Addressing the employment gap
The timing of the scheme coincides with mounting anxiety over jobless growth. Despite high GDP numbers, the unemployment rate remains above 5%, with urban youth bearing the brunt. As per May 2025 estimates, unemployment among urban youth aged 15–29 rose to 17.9% from 17.2% in April, while rural youth unemployment climbed to 13.7%, up from 12.3%. Nearly 45% of India’s workforce remains stuck in low-productivity agriculture.
According to the Economic Survey 2024, the country needs to generate at least 7.85 million non-farm jobs annually through 2030 just to absorb the expanding labour force. By contrast, current job creation falls short of this target by a wide margin.
Demographic window, narrowing fast
India is in the middle of a demographic sweet spot—its working-age population, which stood at 64% in 2021, is projected to rise marginally to 65% by 2036, according to International Labour Organisation data. However, youth participation in the labour force declined to 37% in 2022, a worrying trend for a country banking on its demographic dividend.
If this dividend is not harnessed through productive employment, it could turn into a demographic liability. Youth disengagement, underemployment, and the absence of formal sector job opportunities could deepen economic and social fractures.
Quantity vs quality of jobs
While the ELI scheme promises to expand formal employment, questions about job quality remain. Critics have rightly pointed out that the government must focus not only on the quantity of jobs, but also on the quality—jobs that offer minimum wages, job security, and social protection.
One route is to expand employment in public services—particularly in health, education, and transport—where there are significant staffing gaps. Filling vacancies in these sectors will not only improve service delivery but also boost aggregate demand and productivity.
The larger policy context
The ELI scheme should be viewed as one piece of a broader employment puzzle. Without addressing structural issues such as low female labour force participation, the informalisation of work, and the dearth of high-skill job creation, the impact of such schemes will remain limited. Moreover, any incentive-based policy must be paired with robust monitoring mechanisms to avoid leakages and ensure compliance.
Experience from earlier schemes like the Aatmanirbhar Bharat Rozgar Yojana suggests that uptake depends on ease of access, employer awareness, and the overall health of the economy. In that sense, macroeconomic stability, investment revival, and sector-specific reforms—especially in labour-intensive industries—will be critical for the success of the ELI scheme.
To its credit, the government has recognised the urgency of the employment crisis. The ELI scheme is a welcome move in terms of fiscal commitment and policy signalling. But like all incentive schemes, its effectiveness will hinge on execution, targeting, and integration with broader employment and industrial policy.
For a $5 trillion dream to materialise, India will need not just more jobs—but more meaningful ones.