FY25 Budget shows ways to build an efficient workforce

By Vivek Prasad,

Our nation constantly offers us opportunities, both as private citizens and businesses, to shape its growth trajectory. We just need an eye to spot them and the commitment to follow through. One such opportunity that currently beckons us is to find ways of shaping the destiny of our nation through its young demography. At present, India has one of the youngest populations in the world. This makes it our collective responsibility to ensure that this young demography skilfully engages with entrepreneurial and employment opportunities in a world that is becoming increasingly volatile and uncertain. 

In this article, we discuss how manufacturers and the youth can collectively leverage and deploy Schemes A and B of the ‘Employment-Linked Incentive Schemes’ (ELI) outlined in the Union Budget for FY25 towards building a future-ready manufacturing workforce. Scheme A aims to provide one month’s wage to first-time employees in all sectors, with a direct benefit transfer of up to Rs 15,000 in three instalments. Scheme B aims to drive additional employment in the manufacturing sector, providing incentives to both employees and employers with respect to Employees’ Provident Fund Organisation (EPFO) contributions in the first four years of employment.

Let us assume that a manufacturing unit employs a youth entering the workforce for the first time at a gross salary of Rs 30,000, with 50% (Rs 15,000) as the basic salary and the remainder packaged as allowances—equivalent to 100% of the basic salary.

As per Scheme A , the youth will be paid one month’s wage. Moreover, given that the entity employing the youth is a manufacturing unit, both the youth and the entity can benefit from Scheme B, wherein their respective EPFO contributions would be paid for in the first four years of employment.  Let us assume that the EPFO contribution of the employed youth and the manufacturing employer is fixed at 12% of the basic salary. 

The benefit that would accrue to the manufacturer because of Scheme B during the first financial year of employing the new joiner would be to the tune of Rs 15,000 x 0.12 x 12 = Rs 21,600. This will create a buffer for the employer to provide a bare minimum increase of 12% to the employed youth the next year, depending on his/her productivity and performance. Moreover, the employee will also save Rs 21,600. Thereafter, the manufacturing entity could convince the employee to use these savings for acquiring new skills. 

How can this be done? 

Well, the employee and the employer can enter into a skill-based growth compact. Under this compact, the investment made by the employee towards acquiring new skills during on-the-job/off-job training provided by the employer will be returned to the employee in the following year by the manufacturing entity. This is subject to the condition that the employee applies those skills to achieve the mutually agreed upon productivity levels during the year in which the funds were invested. Let us assume that the new employee invests 50% of the EPFO savings per month into the compact. Over the financial year, the employee would have invested Rs 10,800 into skill building.

At the beginning of FY26, the manufacturing entity can share a no-cost increment of, say, 10%, which is funded through its EPFO non-contributions during FY25 for being a beneficiary of Scheme B. Beyond this proposed increment, in FY26, the employee also stands to get back the money invested into the skill-based productivity compact—i.e. Rs 10,800—on clocking the mutually agreed productivity level during FY25.

If the entity provides a 10% increment to the employee on his/her basic salary, the new basic salary of the employee during FY26 would be Rs 16,500, and his/her total emoluments will now amount to Rs 33,000 (with allowances also increasing by the same amount as they are pegged at 100% of the basic salary). 

With the employee displaying promise in the first year of employment, the manufacturing entity can now chart a career path for this young employee over the next 2–3 years. In the second year too, the employee and the employer would garner EPFO benefits under Scheme B. The employer must now design and build training programmes relevant to the overall growth of this young employee, thus creating a compelling value proposition for him/her to invest 50% (i.e. Rs 16,500 x 0.12 x 12 x 0.5 = Rs 11,880) of the EPFO saved into the compact (see table). 

This would require the employer to develop skilling modules that go beyond shop-floor skills to encompass soft skills such as language, team building, communication and reasoning skills, which this young employee would require to build a career within manufacturing. 

(Vivek Prasad is partner and markets leader at PwC India. Raghav Manohar Narsalay is partner and lead for the Research and Insights Hub at PwC India)

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