ELI Scheme: Socialising Costs for Private Gains
Sanjay Roy
THE cabinet has approved the Employment Linked Incentive (ELI) scheme with an outlay of Rs 99,446 crore, claiming to incentivise the creation of more than 3.5 crore jobs over a period of two years. Out of these, 1.92 crore beneficiaries will be first timers, entering the workforce. The benefits of the Scheme would be applicable to jobs created between August 1, 2025, and July 31, 2027. The government spends from public exchequer one lakh crore rupees to subsidise hiring in the private sector while it is not clear why the government didn’t spend the same amount of money for its own employment guarantee schemes that generate employment in more labour-intensive activities? In fact, the corporates are subsidised for organising production through PLI and again to be subsidised for hiring new people in the process of production through ELI. On top of that their tax liabilities have also been reduced in the past arguing that such policies of reducing corporate tax would further incentivise payment of taxes and stimulate investment in new ventures. Unfortunately, the fact is that corporate profits have soared in recent period while growth of investment in physical capacities continues to decline for a decade and half. Taxes foregone means revenue which could have been used for public purposes are foregone for private interests and now in addition to that they are subsidised using public funds to undertake production that brings them higher private gains!
Expenditure of public money to subsidise wage cost of the corporates is not a mere transfer of resources from one account to the other but a transfer of purpose from creating collective good to private profits. For a capitalist, generation of employment in the act of production is subservient to the purpose of profit making and hence employment is nothing but collateral gains out of the level of production and investment which the capitalist incurs with a given level of technology. In this case the rationale of employment is governed by its contribution to profit which is different in the cases of public employment generation programmes. For the latter kind of programmes, the purpose is to generate employment, and it must be justified by creating new facilities or infrastructure, such as, repairing a school building or digging a pond which is of public use. Therefore, the rationale for employment in public works scheme is to utilise unused human resources to create goods and services for public consumption and the worker receives a wage from government revenue. In the case of private employment, the rationale of production is to produce for sale and most importantly to generate profit to be appropriated by the capitalist owner. Hence incentivising corporates by sharing wage cost by the government is nothing but a clever way of socialising cost of production for private gains.
WHY NOT ENHANCE PUBLIC
EMPLOYMENT SCHEMES?
According to Part A of the scheme, government will pay one month salary up to Rs 15,000 through direct benefit transfer for one additional employment which will be registered in EPFO. Part B says the employers will get incentives in respect of employees with salaries up to Rs 1 lakh. The government will incentivise employers, up to Rs 3000 per month, for two years, for each additional employee with sustained employment for at least six months. For the manufacturing sector, incentives will be extended to the third and fourth years as well. First, this means for each additional employment the employer will be receiving a total sum of Rs 72,000 for a two-year period and in case of manufacturing it could be Rs 1,44,000 for one additional employment continuing for four years, while the additional worker will be receiving only one month salary up to Rs 15,000 from the government.
Second, this reduces the wage cost by the amount paid by the government. As per the slabs announced, a worker who is supposed to receive a wage of say Rs 21,000 per month will get Rs 18,000 from the employer and Rs 3000 from the government. This will incentivise new employment but can also stimulate higher labour turnover adding new records of employment in view of attracting subsidies from the government.
Third, when almost one-third of the workers in organised sector are employed on contract and employers enjoy the benefit of reducing their wage liability from Rs 21,000 to Rs 18,000 because of the subsidy, it will further help pushing down wages for workers in those sectors where no formal employment contract exists. In this segment the employer would restrict the wage to his actual liability which is now reduced by the government subsidy. Fourth, the proposed subsidy would immediately show a steep rise in EPFO registration because this might incentivise registering employment but may not actually increase employment. It can be because of registering an unregistered employee or reemploying someone to avail the benefits of the scheme. Fifth, the purpose of employment for the manufacturer is not to produce something for own consumption but to sell and earn a profit out of that. If there is not enough demand for the goods produced why even a subsidised wage cost stimulate an employer to hire one additional person? If the incremental return from employing an additional person is zero because of lack of demand, then even if the employer receives 3000 from the government why would the employer engage a new person who has to be paid 18000 per month from the employer’s pocket in the above example? Finally, the government didn’t enhance the budget for public works programme because such demand-driven programmes tighten the labour market and can push up rural wages. But subsidizing wage cost in the private sector would help lowering of wages further in the unregistered segment because the employer would bargain with the unprotected worker to accept the wage which is net of the subsidy. Hence this will further create an informal labour market of reduced wages.
Socialising Cost of Production
This has been apparent these days that individual liabilities of capitalists are increasingly being shared by the capitalist state and the cost of reproduction of a continuous stream of labour is shifted to the entire society. The dismantling of labour rights in terms of social security payments, limits and rates of overtime and the idea of eight hours working day is being diluted to the extent that these regulations appear as privileges and the employer is given freedom to reduce workplace payments specific to work relations. The underlying philosophy is there shouldn’t be any regulation to exploiting workers, and the employer should be given free hand on this. It is the duty of the society represented by the state to providing access to continuous stream of labour to the capitalist at social cost. In other words, make provisions for some minimum social security and different forms of transfer payments related to consumption that keep the working-class family alive and available for the disposal of the capitalist.
Now this is another level. It is not only some health or social security benefits extended by the state reducing the burden of reproducing labour for the capitalist employer, even the direct wage cost to be paid at the workplace is to be shared by the society at large. If it had been the case that corporates and the rich are taxed more to mobilise this revenue and that funds the wages or transfer payments at least one could say that this is a transfer of income to the working people from the rich. But there is no such proposal on the part of the government to increase corporate tax or introduce wealth tax for this purpose. Therefore, keeping the income distribution and composition of revenue same if the wage cost is borne by public fund, it is essentially a relief to the corporates. Most importantly revenue includes both direct and indirect taxes and poor people have a significant contribution to the public exchequer and part of that would now be used to subsidise wage payment of the corporates. Therefore, the bottom line of the ELI scheme is society pay for wages of workers such that capitalists can increase private profits!
