Will ELI fix India's jobs crisis?

India is grappling with a stark economic paradox: While gross domestic product (GDP) growth Despite the economy expanding by 8.2 per cent in FY24, there has been a persistent decline in the labour force participation rate (50.2 per cent in Q1 FY24, as reported by the Periodic Labour Force Survey) and a rise in the unemployment rate (9.2 per cent in June 2024, according to the Centre for Monitoring Indian Economy).

- AMARENDU NANDY

This disconnect between India's booming economy and its stagnant job market poses a significant structural challenge that could derail the nation's long-term economic aspirations.

India's demographic dividend, often touted as a critical driver of future growth, risks turning into a demographic liability if the country fails to generate sufficient employment opportunities. The socio-economic stakes are high a large, youthful population with unmet job expectations could exacerbate rising inequality, social unrest, and potentially lead to an economic downturn. Employment is the cornerstone of sustainable economic growth robust job market drives consumption, boosts aggregate demand, and creates a virtuous cycle of economic expansion.

Recognising the crisis, the Indian government has recently announced the employment-linked incentive (ELI) scheme, a policy initiative designed to incentivise businesses to hire more workers. Though belated, the move marks a small but significant step towards addressing the nation's employment challenges. The ELI scheme introduces a range of financial incentives, including wage subsidies for new hires and bonuses for companies that significantly expand their workforce. For instance, companies that employ first-time workers with monthly salaries up to 1 lakh are eligible for wage subsidies of up to 15,000 per employee, paid in instalments. The scheme explicitly targets the manufacturing sector, offering further incentives to companies that increase their employees' provident fund organisation-registered workforce.