The ELI Scheme - Eccentric & Ludicrous Incentive Scheme

“The essence of government is control, or the attempt to control” -?

This might seem like a strange way to begin an article explaining the Employment Linked Incentive Scheme introduced in the Budget 2024. As you read on, however, I am fairly certain you will recognise the significance of these words by Benjamin Tucker, who said so way back in the 19th Century. A colonial legacy - government control - is the primary reason why the Indian economy has been so slow to move forward. The drafting of the ELI Scheme is another example of the lawmaker’s unwillingness to unclench his fist.?

The government introduced 4 key schemes to improve the dire unemployment situation we’re presently facing. The objective of these schemes is the ‘recognition of first-time employees, and [provide] support to employees and employers. The schemes are as follows:

• One-month wage subsidy of up to Rs. 15,000 to first time employees in all formal sectors. This is supposed to benefit 2.1 Cr. youth.
• Incentive, linked to first-time employment, provided in the manufacturing sector. This scheme is supposed to benefit 30 lakh youth.
• Reimbursement of employer’s contribution to provident fund up to Rs. 3,000 per month for 2 years, for each additional employee added. This scheme is to benefit 50 lakh persons (not just ‘youth’).
• Internships in India’s top 500 companies through which our youth will gain exposure for 12 months to real-life business environment. This scheme is supposed to benefit 1 Cr. youth over 5 years.

In addition to these schemes, there is talk about rejuvenation of 1,000 Industrial Training Institutes, interest subvention on education loans by 3%, and the introduction of a Model Skill Loan Scheme. For the purpose of this article, I’ve limited myself to the 4 key schemes listed above. The Annexure to the Finance Minister’s Budget speech has explained how these schemes would work, the conditions one has to fulfil, and the period of coverage. Let’s look at each of them.

Employment Linked Incentive Scheme A: First Timers

Under this scheme, the government will provide an incentive equal to one month’s wage, capped to Rs. 15,000, to first time employees, newly entering the workforce. The employee should be earning a salary of less than Rs. 100,000 per month to qualify for the incentive. All sectors will be covered by this incentive. The employee must become a contributor to the EPF to be eligible - maybe that’s how the government can identify if the employee is a first-timer or not. The scheme is valid for 2 years.

My teacher, Mr Ashim Kumar Jana asked me a question that stumped me. He asked - “Tell me… the government plans to incentivise the person who has been hired. He will now start getting a salary. Why does he need an incentive? Shouldn’t the government incentivise those who don’t get hired? Why is the government giving more money to someone who now already has means to earn a living?” - Let that sink in.

Maybe the answer to that question lies in the subtext. While the title of the scheme is ‘incentive’ the subtext says this will operate as a ‘subsidy’. Here’s what it says “First timers have a learning curve before they become fully productive; subsidy is to assist employees and employers in hiring first timers”. Does this make any sense? If the subsidy is to assist employers, then shouldn’t they be receiving it? If the subsidy is to make employees more productive, shouldn’t this ‘incentive’ be invested to enhance their skills ‘before’ they can be hired??

Here are additional conditions:

• The subsidy will be paid in three instalments of Rs. 5,000 each.
• The employee must undergo compulsory online Financial Literacy course before claiming the second instalment.
• Subsidy to be refunded by the employer if the employment to the first-timer ends within 12 months of recruitment.

I have so many questions:

• Which body will conduct the Financial Literacy course??
• Will the course be conducted by the government online or offline??
• Will the course be conducted through a public-private partnership??
• Will there be any pass marks to the course or will it be a formality?
• Can the course be taken anytime in the year??
• Can the employer deduct the incentive from the CTC, as it's a subsidy?
• Should the employer check with the employee each month if the Financial Literacy course has been completed to determine what the net pay should be?
• What if the employee decides to take up higher education (India needs a more skilled workforce) & quits employment within 12 months - should the employer refund the subsidy?
• What if the employment is terminated for cause - should the employer refund the subsidy?
• Given that both parties know that the subsidy must be refunded on termination within 12 months, would appraisals be conducted differently?

The bigger question - Would employers be hesitant to hire freshers with this overhang? Would these meaningless conditions actually hurt the chances of our youth looking for employment??

Employment Linked Incentive Scheme B:? Job creation in manufacturing

For those in the manufacturing industry, this scheme offers an incentive to employees and employers over a period of 4 years. The scheme is valid for 2 years, and will be in addition to Scheme A.

The hallmark of this scheme is its complex maths which I find hard to digest. Even the great Einstein distilled his enormous work into an elegant 3 letter formula!?

Here’s what the scheme says:

• The incentive shall be calculated as a % on the wage earned by the employee. The incentive so calculated shall be shared equally between the employer and the employee.
• The incentive shall be offered over a period of 4 years, at a reducing rate basis. For the first two years, the incentive shall be 24% of the wage, 16% in the third year and 8% in the fourth. The total incentive works out to 72% of the wage.?
• Eligible employers fall under two categories - (a) companies, (b) non-corporate entities with a three year track record of EPFO.?
• To be eligible, the employer must hire at least (a) 50 or (b) 25% of previous year’s EPFO baseline employee count, whichever is lower.?
• Those hired should be previously non-EPFO enrolled workers?
• Employer must maintain threshold level of enhanced employment throughout, failing which subsidy benefit will stop
• Incentive will be calculated on a maximum wage limit of Rs. 25,000 per month
• Again, subsidy to be refunded by the employer if the employment to the first-timer ends within 12 months of recruitment.

Again, many questions arise:

• It is important to note that non-corporates (or the ‘unorganised sector’) are the backbone of the Indian economy; I’m unsure as to how many of them are registered with EPFO.?
• Why should the employee be deprived of an incentive if the employer is unable to or unwilling to hire the requisite number to be eligible for the scheme?
• Further, why would the employer’s hiring plans be influenced by this scheme, especially when (a) 100% of wage could should be borned from Day 1, in the ‘hope’ of receiving capped benefits over 4 years, (b) there is an obligation to refund the incentive?
• Who tracks ‘enhanced employment failing which subsidy benefit will stop’? What does the phrase ‘enhanced employment’ even mean?

Employment Linked Incentive Scheme C: Support to employers

This scheme has been designed as a reimbursement of employer’s contribution to provident fund. Eligible employers shall be entitled to receive up to Rs. 3,000 per month for additional employees hired in the previous year. The reason why ‘previous year’ is used (maybe?) is that the reimbursement shall be released only next year. Employers who create more than 1,000 jobs will receive the refund on a quarterly basis.

Only those employers who increase employment above the baseline (i.e. previous year’s EPFO employee count) shall be eligible. Again (& just to simplify), a differentiated approach has been proposed: employers with

• less than 50 employees, should increase the count by at least 2 employees, and?
• those with more than 50 employees, should increase the count by at least 5.
• and both categories should “sustain the higher level”, i.e. cannot bring down the count

Scheme C is in addition to Scheme A, but those covered under Scheme B don’t qualify. In other words, Scheme C is for the non-manufacturing sector. Again the language used to explain the scheme is a travesty; I’m trying my best to make sense of it.

Internship in Top Companies

This is the icing on the cake - or rather the burnt crust of a mouldy toast.?

The government plans to skill 1 Cr. youth over a period of 5 years in India’s top companies. That’s 20 Lakh youth per year in India’s top 500 companies. Or 4,000 youth per top company, per year. All the best with that!

Here is how the scheme is designed

• Youth aged between 21 and 24 will be eligible to apply to the Prime Minister’s Internship Scheme, through an online portal.
• Companies may volunteer into the scheme (so, it may not be all 500 of the top companies envisaged in the Finance Minister’s speech, further skewing the intake per company per year)
• The company should select from a ‘shortlist’. The short listing will be based on “objective criteria with emphasis on those with lower employability” (whatever this means)
• The intern will be given an allowance of Rs.5,000 per month. The allowance shall be shared between (a) the central government - 90%, and (b) the company - 10%, which can be paid from its CSR funds.?
• The cost of training can be paid out of the CSR funds as well.
• The central government will additionally offer Rs. 6,000 as ‘grant for incidentals’ - but the scheme isn’t clear as to who gets this sum, the intern or the company
• If the company is unable to absorb the interns, it is required to tie-up with its ‘forward and backward supply chain’ or ‘other group companies’ to meet the said target!?

Not everyone is eligible to benefit from the scheme. Those ineligible are:

• Candidates who have IIT, IIM, IISER, CA, CMA etc. as qualification – this is understandable.
• If any member of the family is assessed for Income Tax - this makes no sense (& what does ‘family’ cover - would an applicant be denied because of a cousin who files income tax returns?)
• If any member of the family is a government employee, etc. - this is infuriating, not because the condition is meaningless, but because of the laziness with which it is drafted - what does ‘etc.’ here even mean?? Would the scheme not apply to anyone whose ‘family’ has a job?

It appears that this scheme is available only to those applicants whose family does not include any member who files tax returns (could be a NIL return too) or who has a job (government or ‘etc.’).?

Let the madness of it all sink in

60% of our working population is self-employed. Over 40% of graduates are unemployed. A large portion of our educated youth are unemployable because of a broken educational system. And these are the schemes on offer to ‘uplift our youth’.?

I leave you with a question asked by a prominent leader from North India - “Will reservation be given for these short-term employment initiatives”

PS: I should go back to writing about the economy of our past. Maybe the exuberance of the 1990 reforms will return my tranquillity. That’s coming up next week.