Employment Linked Incentive (ELI) Scheme

1. Introduction

The Employment Linked Incentive Scheme (ELI Scheme) was approved by the Union Cabinet on 1 July 2025 to promote large-scale formal employment, improve employability and expand social security coverage across all sectors, with a special emphasis on the manufacturing sector. The scheme was announced in the Union Budget 2024–25 as part of the Prime Minister’s package of five schemes with a total outlay of ₹2 lakh crore for employment, skilling and other opportunities for youth.

The Employment Linked Incentive Scheme has a total outlay of ₹99,446 crore and aims to facilitate the creation of more than 3.5 crore jobs over a period of two years, of which nearly 1.92 crore beneficiaries are expected to be first-time entrants into the formal workforce. The benefits are applicable for jobs created between 1 August 2025 and 31 July 2027 and are implemented through the Employees’ Provident Fund Organisation (EPFO). The ELI Scheme consists of two components:

• Part A – Incentive to First-time Employees
• Part B – Incentive to Employers

These components aim to encourage formalisation of employment, increase EPFO enrolment and incentivise employers to create additional jobs.

2. Objectives and Key Features

The primary objective of the Employment Linked Incentive Scheme (ELI Scheme) is to create large-scale formal employment by incentivising both first-time employees and employers generating additional jobs. The scheme seeks to expand social security coverage through EPFO, improve youth employability, encourage workforce formalisation and provide sustained employment, particularly in the manufacturing sector. It is expected to create over 3.5 crore jobs over two years while bringing nearly 1.92 crore first-time workers into the formal economy. The Employment Linked Incentive Scheme supports the Government’s broader vision of Viksit Bharat @2047, inclusive economic growth and employment-led development. The scheme consists of two components:

Part A: Incentive to First-time Employees

• Applicable to employees registering with EPFO for the first time.
• Covers employees drawing monthly wages up to ₹1 lakh.
• Eligible employees will receive an incentive equal to one month’s wage, subject to a maximum of ₹15,000.
• The incentive will be paid in two instalments; First instalment after 6 months of continuous service and second instalment after 12 months, subject to completion of a financial literacy programme.
• A portion of the second instalment will be kept in a fixed savings instrument to encourage long-term financial discipline.
• The ELI Scheme is expected to benefit nearly 1.92 crore first-time employees.

Part B: Incentive to Employers

• Applicable to all sectors, with additional incentives for the manufacturing sector.
• Employers must recruit at least 2 additional employees (for establishments with fewer than 50 workers), or 5 additional employees (for establishments with 50 or more workers).
• Incentives are available for employees earning up to ₹1 lakh per month.
• Employers will receive incentives of up to ₹3,000 per month per additional employee for two years.
• Manufacturing establishments will receive the incentive for an additional two years, making the benefit available for four years.
• The incentive will be directly transferred to employers through the EPFO based on sustained employment.

The scheme will be implemented by the Ministry of Labour & Employment through the Employees’ Provident Fund Organisation (EPFO) using Aadhaar-based Direct Benefit Transfer (DBT) and digital verification. The Employment Linked Incentive Scheme is expected to accelerate formalisation of employment, strengthen social security, increase EPFO enrolment and provide a significant boost to labour-intensive sectors, specially manufacturing.

3. Significance, Challenges and Way Forward

The Employment Linked Incentive Scheme (ELI Scheme) is a major labour market reform aimed at shifting employment from the informal to the formal sector. By linking financial incentives with job creation, the scheme encourages enterprises to expand their workforce while ensuring that newly recruited workers are brought under the Employees’ Provident Fund (EPF) framework. This will strengthen social security, improve income security and enhance the quality of employment in the economy. The Employment Linked Incentive Scheme is expected to generate more than 3.5 crore formal jobs, including 1.92 crore first-time employees, thereby supporting inclusive and employment-led economic growth.

The scheme is also expected to provide a significant boost to the manufacturing sector, which has high employment potential. By offering employers incentives of up to ₹3,000 per employee per month and extending benefits for four years in manufacturing, the Government aims to encourage labour-intensive industries to expand production and employment. The ELI Scheme complements initiatives such as Make in India, Skill India, PM Internship Scheme and PM Package for Employment and Skilling, thereby contributing to the vision of Viksit Bharat @2047.

Despite its potential, the scheme may face challenges such as low awareness among MSMEs, limited capacity of small enterprises to create sustained employment, possible misuse through temporary hiring, and difficulties in retaining workers after the incentive period. Further, a large proportion of India’s workforce continues to remain outside the formal sector, limiting the scheme’s immediate reach. Effective monitoring through EPFO, Aadhaar-based verification and digital compliance will therefore be essential for successful implementation.

Going forward, the Government should strengthen skill development in line with industry demand, improve ease of doing business for MSMEs, encourage higher female labour force participation, integrate the Employment Linked Incentive Scheme with state-level employment initiatives and ensure timely disbursement of incentives through the EPFO. Regular impact assessment, stronger industry participation and better awareness among employers and workers will help maximise the scheme’s effectiveness in generating sustainable formal employment.

BPSC Mains Practice Question

Q1. The Employment Linked Incentive Scheme (ELI Scheme) seeks to promote formal employment by incentivising both first-time employees and employers. Critically examine its objectives, key features and potential role in addressing India’s employment challenges. Also discuss the implementation challenges and suggest suitable measures for its effective execution.

Learn More from the Ministry of Labour & Employment, Government of India

Readers interested in the Employment Linked Incentive Scheme, ELI Scheme, formal employment, EPFO enrolment, employment incentives, social security coverage, youth employment, manufacturing jobs and employment-linked government initiatives can visit the official website of the Ministry of Labour & Employment, Government of India. The portal provides authentic information on labour policies, employment schemes, social security initiatives, EPFO-related measures and programmes aimed at promoting formal and sustainable employment in India.