Synopsis

The Indian government has introduced the Employment Linked Incentive (ELI) scheme, a significant departure from previous economic policies. The scheme provides financial incentives to corporates for each new employee hired, marking a shift from the traditional indirect methods like tax cuts and production incentives. The ELI scheme is a direct intervention, focusing on direct job creation rather than relying on broader economic growth. The ELI scheme reflects a broader shift towards policies that directly address job creation and labour market issues, moving away from the neoliberal focus on GDP growth.

Article Explanation

Finance Secretary T.V. Somanathan emphasized the Narendra Modi government’s announcement of a new employment-linked incentive (ELI) scheme for corporates, which offers a financial incentive for every new employee hired. Critics argue that this is a myopic and technical analysis that overlooks a fundamental shift in economic thought. The Finance Secretary’s statement signifies a significant change in the Modi government’s economic policy direction, recognizing the misplaced faith in chasing GDP growth, the capital-labour skew, and the need for course correction.

The Modi government’s economic philosophy has been based on the Washington Consensus’ trickle-down development model, which focuses on the efficient production of goods and services to lead to jobs, incomes, and prosperity for people. The ‘Make in India’ initiative in 2014 aimed to spur manufacturing and hire large numbers of workers. In 2019, the government announced a significant cut in corporate tax rates for companies, hoping it would lure industry to invest more, leading to more jobs. In 2020, the government introduced a new Production incentive (PLI) scheme, offering a ₹2 lakh crore financial incentive to companies based on certain production targets.

However, none of these initiatives yielded the expected number of jobs. Companies either pocketed the tax cuts without investing or invested more in equipment than hiring people. Thus, production incentives or tax cuts for corporations did not trickle down to enough people through jobs and incomes.

The failure of current methods to create enough jobs despite GDP growth. ELI (Electronic Labor Markets) represents a shift in strategy, aiming to provide direct incentives to companies to hire people rather than relying on indirect trickle-down economics. This approach is not standalone but should be viewed within the broader context of PLI (Production Linked Incentives), signalling a more comprehensive policy framework.

The Modi government’s introduction of ELI marks its first acknowledgement of the breakdown between economic growth and job creation. The ultimate goal of economic development is to improve living standards for the median citizen, which the current neo-liberal economic model has failed to achieve, as it has stopped translating into jobs and prosperity. Therefore, there is a need for direct policy interventions that create jobs for people rather than focusing solely on economic output.

ELI aims to influence businesses of all sizes—small, medium, and large—to prioritize hiring people over investing in machinery. While some neo-liberal economists argue that this could reduce productivity and global competitiveness, the existing model, which prioritizes capital and headline GDP over job creation, is deemed unsustainable in a democratic society. The job shortage has led to extreme proposals, such as reserving jobs for locals in Karnataka, driven by political pressures in a democracy where few jobs are generated overall.

Merely criticizing such proposals without offering concrete solutions is seen as intellectually dishonest. India faces both a job deficit and a deficit of ideas to address this issue. While economists often call for reforms to create more jobs, ELI presents a tangible new idea aimed at addressing the imbalance between capital and labour and the challenges of jobless growth. It signifies a policy shift from trickle-down economics to bottom-up interventions, focusing directly on generating employment and addressing the fundamental issues of India’s economy.

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