Critically evaluate the Employment Linked Incentive Scheme as a tool for formalising India's workforce.

Formalisation means bringing workers under written contracts and statutory social security. With close to 90% of workers added in 2019-20 entering informal employment [4], the Employment Linked Incentive (ELI) Scheme — operational since August 2025 as the PM Viksit Bharat Rozgar Yojana [2] — makes EPFO enrolment its lever. Its design is sound, but its reach is partial.

Strengths as a formalisation instrument

• EPFO as the gateway: incentives flow only through EPFO registration, so every subsidised job is simultaneously a socially secured job, converting a fiscal transfer into a permanent statistical and welfare entry [1].
• Two-sided design: first-time employees receive one month's wage up to ₹15,000, while employers get up to ₹3,000 per month for two years for each additional employee, tackling both worker reluctance and employer compliance cost [1].
• Scale and outcome-linkage: a ₹99,446 crore outlay targets over 3.5 crore jobs, of which 1.92 crore are first-timers; payment is conditional on six months of sustained employment, reducing paper hiring [1].
• Sectoral depth: benefits extend into the third and fourth years for manufacturing, where formalisation potential is highest [1].

Limitations

• Structural exclusion: EPF coverage applies to larger establishments; informality is concentrated in agriculture and micro-enterprises, which the scheme cannot reach.
• Sustainability risk: eligibility is confined to jobs created between 1 August 2025 and 31 July 2027 [1]; firms may revert to informal hiring once support lapses.
• Deadweight and churning: subsidies may fund hiring that would have occurred anyway, or encourage rotation of low-wage workers within the wage ceiling.
• Demand-side dependence: incentives cannot create jobs absent investment and employability, which is why the ₹2 lakh crore Prime Minister's Package pairs ELI with skilling and internships for 4.1 crore youth [3].

On balance, ELI is a credible but incomplete formalisation tool — effective at the organised-sector margin, silent on the informal core. Extending it to smaller units, linking it with e-Shram and ITI upgradation, and independent evaluation of net job additionality would align it with the constitutional promise of Article 41 and SDG-8's decent work agenda.