The BGA India team, led by Managing Director Anuj Gupta, wrote an update to clients on the Indian government’s new incentives to foster job creation and research capabilities.

Context

  • The Union Cabinet, led by Prime Minister Narendra Modi, has approved two landmark initiatives: the Employment-Linked Incentive (ELI) scheme and the Research, Development and Innovation (RDI) scheme, with budgets of $11.6 billion and $11.7 billion, respectively. The ELI scheme promotes formal job creation in the manufacturing sector by incentivizing employers to hire first-time workers. The RDI scheme aims to spur private sector investments in high-tech research and development (R&D), especially in sunrise sectors, through long-term and low-interest financing.
  • The schemes complement the government’s existing initiatives to enhance investor confidence by creating a stable, skilled and innovation-ready industrial base. Existing initiatives include production-linked incentives (PLI) and the relaxation of foreign direct investment norms to increase manufacturing and boost capital inflows across sectors.

Significance

  • India aspires to offer an alternative manufacturing destination for both low-cost assembly and high-value innovation activities. To achieve this, a two-pronged strategy is being implemented that includes moving up the global value chain and investing in the emerging technology skills race, especially in the Global South.
  • India’s PLI, ELI and RDI schemes are designed to complement and drive India’s industrial transformation.
  • PLIs aim to increase domestic manufacturing and exports by incentivizing production in key sectors, in turn attracting large-scale investments and creating demand for skilled labor. ELIs generate formal employment, particularly for first-time workers, helping meet labor demand while promoting workforce formalization and reducing hiring costs.
  • In tandem, the RDI scheme addresses the innovation and technology gap by offering long-term, low-cost financing to the private sector for R&D in sunrise and strategic sectors. This is expected to buttress existing emerging technology programs, such as the $1.2 billion IndiaAI Mission, which aims to develop a comprehensive artificial intelligence (AI) ecosystem and position India as a leading innovator and thought leader in global AI deployment.
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Implications

  • While the PM Gati Shakti scheme is directed toward improving logistical connectivity, multiple ease of doing business reforms are aimed at investor-friendly measures such as reduced compliance burdens and increased transparency. Skill India, Start-Up India and the recently launched PM Internship Scheme aim to increase job creation and employability. In the long run, the combined measures will likely have a domino effect on India’s growth by increasing investments, jobs, income levels and domestic consumption.
  • With India’s trade policy making a strategic shift to Western economies, the government expects to leverage its large market base in return for increased investments, technology diffusion and supply chain diversification. Supported by India’s stable political and economic environment, businesses can expect new opportunities in labor-intensive manufacturing industries and high-impact research and innovation in the private sector.

If you have questions or comments, please contact BGA India Managing Director Anuj Gupta at agupta@bowergroupasia.com.

Best regards,

BGA India Team