Why cash-rich India Inc could be bigger beneficiary of job scheme ELI

The Union Cabinet approved, on July 1, 2025, yet another extravagant subsidy scheme for the private sector, called the Employment Linked Incentive (ELI) Scheme, with an outlay of ₹99,446 crore.

The government has made yet another equally extravagant claim of creating 35 million jobs over two years through this scheme in the formal sector, particularly in manufacturing.

Part A of the scheme will transfer cash up to ₹15,000 in a year for two years to new employees with a monthly salary up to ₹1 lakh. Part B will transfer ₹1,000-3,000 to employers a month for each new employee (monthly salary up to ₹1 lakh) for two years; for manufacturing, this would extend up to four years. Both cash transfers are for EPF-registered employees and employers.

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The scheme does not claim to create long-term or permanent jobs. The first part of the scheme is entirely silent on the tenure of employment, while the second part limits employment to only six months (“on a sustained basis for at least six months”).

Distressing questions

The first thing to note is new employees will receive a maximum of up to ₹15,000 a year or ₹30,000 for two years. But employers will get up to ₹36,000 a year and ₹72,000 over two years in the non-manufacturing sector and up to ₹1.44 lakh over four years in the manufacturing sector.

That is, this scheme (i) subsidises labour for employers and (ii) pays employers’ EPF contribution on behalf of the employers.

Watch | ‘Centre’s ELI scheme focuses on supply instead of addressing weak demand'

This raises many disturbing questions.

The least offensive question is: What is the logic of offering ₹15,000 to an employee getting a salary of around ₹1 lakh a month or ₹12 lakh a year?

Is ₹12 lakh a year salary the cut-off for minimum wages in the formal industrial sector?

Not at all.

The Centre last fixed minimum wages for “highly skilled” industrial workers on September 28, 2022, at ₹693 per day. Variable DA for such workers was last set on March 28, 2025, at ₹372 (maximum on both counts). This takes the total earnings or salary of an industrial worker to ₹31,950 a month or ₹3.5 lakh a year. This is much less than the ELI’s beneficiaries – up to ₹12 lakh salary a year.

Wage Code yet to materialise

Meanwhile, the Wage Code of 2019, promising to universalise minimum wage, has remained on paper for six years.

The most pertinent questions, however, are:

• Why is public money being used to pay the employer’s EPF dues?

• Why do employers need a subsidy for up to four years when employment is not guaranteed beyond six months?

• Is it the Centre’s case that India Inc is facing a fund crunch and needs doles – like free ration for 813.5 million, or over 60 per cent of population, since April 2020?

None of it makes sense, especially the last question. Actually, India Inc is flush with cash and hoarding more of it by the year. Here is why.

Why doles for India Inc?

The Economic Survey of 2023-24 said India Inc was "swimming in excess profits". Recall Chief Economic Advisor Anantha V Nageswaran’s asking India Inc on December 5, 2024 why it was indulging in “self-destructive” practices like hiring more on contracts (“creeping informalisation”) and not raising wages even when it was making huge profits – profits of Nifty500 companies growing 4X in four years and profit after tax hitting 15-year high in FY24.

A month later, a business portal reported that the cash reserves of BSE500 companies (excluding BFSI, oil and gas) grew over 51 per cent in four years, from ₹5.06 lakh crore at the end of FY20 to ₹7.68 lakh crore on September 30, 2024.

Two months later, in February 2025, a national daily estimated that the aggregate cash and cash equivalent balances of Nifty500 companies had grown 35 per cent in two years, from ₹10.6 lakh crore in September 2022 to ₹14.3 lakh crore in September 2024.

Clearly, India Inc is not short of profits or cash, and there is no justification for the doles the ELI is offering.

It actually gets worse.

The Centre had made the same mistakes earlier too, without any sign of tangible gains in jobs. Rather, those schemes failed to stop job loss in the formal sector.

Failed PMRPY, ABRY

In 2018, the Centre rolled out the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY), by giving cash handouts to India Inc for the twin purpose of creating jobs and formalising informal workers.

Also read | With conflicting official numbers, confusion clouds India's jobs scene

The cash handout was for “employer’s full contribution i.e. 12 per cent towards EPF and EPS both” for three years. It stated: “This scheme has a dual benefit, where, on the one hand, the employer is incentivised for increasing the employment base of workers in the establishment, and on the other hand, these workers will have access to social security benefits of the organised sector.”

The PMRPY was wound up on March 31, 2022. The Ministry of Labour & Employment says, ₹9,253 crore was given to 1,52,900 employers towards their EPF contributions on behalf of 12 million employees. This statement flags that the scheme is “to incentivise employers for new employment”. In short, it was another ELI’s. There is no mention of job creation.

There was yet another EPF-linked cash handout scheme for India Inc: Aatmanirbhar Bharat Rozgar Yojana (ABRY), which “reduces the financial burden of the employers” and “encourages them (employers) to hire more workers”. It was launched in October 2020 to recover jobs lost due to the nationwide lockdown. By the end of FY24, ₹10,188.5 crore was paid to 1,52,517 employers. But there is no mention of jobs gained.

But if you think these EPF-linked incentives to employers (PMRPY and ABRY) created jobs or formalised informal workers, perish the thought. The EPFO data, released on June 20, 2025, shows:

• “New EPF subscribers” fell from 13.9 million in FY19 (the first full fiscal for which data are available) to 11.4 million in FY25.

• “Net payroll” (total EPFO registered workers) went up from 6.1 million in FY19 to 13.1 million in FY24 but has fallen to 12.98 million in FY25.

The Centre has made no effort to find out why “net EPFO subscribers” and “net payroll” fell, nor explained why the ELI would deliver.

Incentivising EPF law violation

Every time the Centre pays for the employers’ contributions to EPF, it violates its own law – The Employees’ Provident Funds and Miscellaneous Provisions Act of 1952. Not paying the EPF is a criminal offence punishable with one year's jail with/without a fine. The law also empowers the Centre to recover the dues from the defaulting employer.

Therefore, every time the Centre pays for the employers’ EPF, it grants amnesty and incentivises employers to default on EPF payment.

Another ham-handed approach

The ELI was first announced in the July 2024 budget, as part of the prime minister’s package of five schemes to incentivise job creation, skilling and other opportunities for 41 million youth with an outlay of ₹2 lakh crore. The packages included the PM Internship Scheme (PMIS) to provide internships “in 500 top companies” to 10 million youth in five years through cash handouts and another one for upgrading ITIs.

None of it was mentioned in the February 2025 budget.

A year later, the ELI gets the Union Cabinet’s nod but without the rules to govern it being framed in the interim, timing it ahead of elections to five states. Is this an electoral slogan or a sincere effort to address the job crisis?

Meanwhile, the PMIS is undergoing a pilot. This scheme has another interesting history. A day after announcing it in her budget speech, FM Nirmala Sitharaman gave a series of interviews to assure India Inc that it was “not compulsory” but a “nudge” to industry. Apparently, she had done no homework and caused a panic.

Another question arises about the ELI’s “special focus on manufacturing”.

Manufacturing struggle

The formal sector is bleeding jobs, as the EPFO data given earlier shows. Its manufacturing is doing the same, too. In fact, India would achieve great success if it could stop job loss in the formal sector in general and manufacturing in particular.

Also read | Why manufacturing continues to fail even with unprecedented incentives

Take a look at the manufacturing performance:

• The PLFS reports from 2017-18 to 2023-24 show the manufacturing job share has shrunk from 12.1 to 11.4 per cent.

• The National Accounts Statistics show, manufacturing GVA has progressively fallen from 17.4 per cent of total GVA in FY12 to 13.9 per cent in FY25. That is further than any time from the ‘Make in India’ goal of raising it to 25 per cent.

This is despite a series of big-ticket initiatives like ‘Make in India’ of 2015, corporate tax cut of 2019 and Productivity Linked Incentive (PLI) schemes of 2021, to boost manufacturing output and jobs.

Many would recall Sitharaman’s lament in her famous ‘Hanuman’ speech of September 2022 about how the corporate tax cut and PLI, which she disclosed was given simply because India Inc had asked, didn’t lead to the revival of private capex or job creation. The corporate tax cut was used to repair debts, build cash balances and other current assets, rather than investing in the economy.

The PLI came with an outlay of ₹1.97 lakh crore to produce 6 million jobs in five years, as Sitharaman had said in her 2022 budget speech. Four years (FY22-FY25) later, a Commerce and Industry Ministry review said, ₹21,534 crore or 10.9 per cent of the outlay had been disbursed, and 1.2 million jobs (direct and indirect) or 20 per cent of the promised jobs were created by FY25. Yet, the Centre rolled out PLI 3.0 on March 28, 2025, with another outlay of ₹22,919 crore for electronic components (as against assembling earlier) – four days after the news hit that the Centre would let PLI 1.0 and PLI 2.0 lapse due to poor outcomes.

There is yet another subsidy scheme for semiconductors, Design Linked Incentive (DLI), with an outlay of 76,000 crore for subsidising 50 per cent of project costs. Plus, state governments give additional subsidies towards such projects, and the PLI already gives a 4-6 per cent subsidy on the net sale of semiconductor design.

Why is manufacturing failing?

There is no mystery surrounding manufacturing’s failure.

For jobs to be created, there should be consumption demand for products and services, which would incentivise investment in capacity building, creating jobs. But India’s consumption demand is far from robust.

Growth in consumption (PFCE) has drastically fallen, averaging 10.6 per cent in the past six fiscals starting with FY20 (when real GDP growth plunged to 3.9 per cent before the pandemic), from 12.2 during the previous six fiscals of FY14-FY19 (current prices).

This also meant that private corporate capex remains muted, averaging 10.4 per cent of GDP during the past eight fiscals of FY17-FY24 (up to which data is available) – a fall from the peak of 16.8 per cent in FY08 and 11.9 per cent in FY18 (current prices).

Two more datasets demonstrate why manufacturing is the wrong tree to bark up.

Also read | Manufacturing pulls down Q4 GDP to 7.4 pc; FY25 growth to 6.5 pc: Govt data

• Manufacturing IIP: Growth averages 3.3 per cent during the past 13 fiscals of FY13-FY25, which is far below GDP’s growth average of 10.9 per cent (nominal) or 6.1 per cent (real). Manufacturing is, in fact, dragging down the economy.

• Manufacturing’s capacity utilisation: Averages 74.4 per cent from Q3 of FY22, when it broke into the 70 per cent mark after a long gap, to Q3 of FY25, up to which data is available. That is, a surplus or idle capacity of over 25 per cent, showing a demand-side problem.

The Centre’s task is cut out: Stop giving doles to cash surplus India Inc and focus on reviving demand instead.