ELI schemes likely to favour large companies, Labour Ministry told

Employer bodies share concern as part of stakeholder meet with govt

Large companies with greater hiring capacities and resources may be better positioned to take advantage of the incentives offered under the three newly announced employment-linked incentive (ELI) schemes.

These are among the concerns raised by employer organisations with the labour ministry, pointing out that this could result in “disproportionate” benefits for those companies, potentially leading to concentrated job creation in certain sectors and regions.

As part of the consultations on finalising the rules for implementing the three ELIs, the labour ministry has been holding discussions with stakeholders including industry leaders, employers’ organisations, trade unions, representatives from medium and small enterprises, etc.

“Industries with higher hiring capacities or better resource access may more effectively leverage incentives, potentially leading to concentrated job creation in specific sectors or regions, leaving others marginalised. To address the concern, equitable distribution across various sectors, including rural and underdeveloped areas, is imperative for the scheme’s success. The scheme needs to encompass mechanisms to redress these disparities and promote balanced growth,” said Teamlease in its proposal submitted to the government.

Besides, the proposal by Teamlease raises concern that implementing the ELI schemes carries the risk of substandard employee remuneration. The schemes are skill-agnostic and offers financial incentives based on the number of individuals hired, thus there is a concern that certain employers may opt to engage a larger workforce at lower wages to maximise benefit.

“The level of labour intensity within each sector will determine the magnitude of ELI payouts allocated to that sector. It is imperative to distinctly delineate sector-specific and skill-level-specific incentives within the scheme's particulars,” the proposal said.

Meanwhile, a proposal by the Indian Staffing Federation (ISF) points out the restriction of considering only “insourced employee” (ie an employee working directly in the entity paying salary) is a hindrance to creating formal jobs because a large number of firms hire through staffing companies on seasonal requirements.

“These staffing companies provide all the social security benefits similar to what permanent employees get. Thus, they must be considered as ‘employer’ in this case as well,” the proposal stated.

Also, the organisations have raised concern about the provision of refunding the subsidy by an employer if employment to the first-timer ends within 12 months.

“(The) nature of employment and company to work for is also a choice of employee, thus if the EPFO contribution is received consistently, irrespective of employer, then it should be considered beneficial under this scheme, instead of focusing on the employer penalty,” the proposal by the ISF reads. 

Announced by Union Finance Minister Nirmala Sitharaman in the Budget of July as part of the Prime Minister’s package to facilitate the employment and skilling of youths, the three ELI schemes have a budgetary outlay of Rs 1.07 trillion over five years. 

Under this, the first scheme will incentivise first-time eligible employees of an establishment in the formal sector and will reimburse one month’s wage up to Rs 15,000 in three instalments. The second scheme will allure additional employment in the manufacturing sector, with respect to their provident fund contribution in the first four years of employment. And the third scheme will provide employers up to Rs 3,000 per month for each additional employee for two years.

Talking to reporters earlier this month, Union Labour Minister Mansukh Mandaviya said the ministry would send a rollout plan to the Union Cabinet to seek approval for the implementation of the three schemes in the coming days because stakeholder consultations were underway.   


Key concerns

 Job creation will concentrate in high-hiring industries and regions

 Employers may prioritise quantity over quality, driving down wages

 Excluding staffing agency hires narrows the programme’s impact

 Subsidy refund for short-term employment may discourage employer participation