With nearly 90% of India’s workforce employed in the informal sector, the central government’s newly launched Employment-Linked Incentive (ELI) Scheme is aimed at formalising India’s vast informal labour market, but the question remains: Will the ₹99,446 crore scheme turn things around for good?Announced on July 1, the ELI scheme plans to generate 3.5 crore formal jobs by July 2027, of which 1.9 crore are expected to be first-time formal workers. Through a combination of wage subsidies for employees and financial incentives for employers, the government hopes to nudge India’s predominantly informal economy into the formal fold.
The scheme, split into two parts, offers first-time employees with income up to ₹1 lakh per month an incentive of ₹15,000 to be paid in two installments after completing six and twelve months. The amount will be credited directly into the beneficiary’s bank accounts and workers will have to undergo financial literacy training, and a part of the benefit will be earmarked for savings.
Companies on the other hand stand to benefit up to ₹3,000/month per every new employee hired in two years. This is extended to four years for manufacturing units, with eligibility based on EPFO registration and minimum hiring thresholds. India’s informal economy accounts for an overwhelming share of employment, with workers lacking access to provident funds, insurance, or job security. ELI aims to bring them under the EPFO net—offering long-term social security and better income stability.
The government’s messaging is clear: incentivise formal hiring, especially among MSMEs and labour-intensive sectors like textiles, construction, and manufacturing. Economists believe the direct benefit transfer model, coupled with performance-linked subsidies, offers a pragmatic route to formalisation. By linking financial support to employee retention and EPFO contributions, ELI encourages both sustained employment and institutional accountability.However, some experts believe that if not planned properly, the scheme might just end up shifting workers from informal to formal economy rather than creating new jobs. They also warn of other risks.“The biggest risk lies in misuse. In labour‑intensive sectors like manufacturing, a ₹3,000 subsidy per employee can amount to crores for a single company, creating a strong temptation to inflate payrolls or fabricate records. To prevent this, we need airtight monitoring, a frictionless application and disbursement process, and strict audits—otherwise, the scheme’s benefits will be undermined by the same loopholes that plagued earlier subsidy programmes,” says Afaq Hussain, Director and Founding Member of Bureau of Research on Industry and Economic Fundamentals.Meanwhile, policy watchers are cautioning against over-optimism adding that job creation alone isn’t enough—jobs need to be sustainable. ELI doesn’t directly address the demand-side concerns that deter private firms from expanding headcounts in the first place. Without a parallel push in industrial investment and consumption demand, the uptake of ELI may fall short of its 3.5 crore job target.Furthermore, there are administrative challenges such as the EPFO’s ability to process millions of new entries, ensure timely payouts, and prevent fraud remains to be tested. Delays or loopholes in execution could blunt the scheme’s impact. “The application and disbursement process must be exceptionally straightforward. If small companies must endure cumbersome paperwork or prolonged delays—as we’ve seen with previous subsidy schemes—they will simply opt out. A user‑friendly digital platform and expedited payments are essential to drive adoption,” says Pramod Bhasim, Founder and Chairman of Genpact.For ELI to become a meaningful solution, it must be accompanied by broader reforms: support for MSMEs, protection for gig and informal workers, smoother EPFO processes, and targeted investment in labour-intensive sectors.
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