Are Government Subsidies Good or Bad for India?
A significant part of the Government’s budget is allotted for various subsidies. This major part of the subsidy is prepared considering the larger population who fails to purchase basic commodities like cooking gas, energy, fertiliser etc. Therefore, to understand subsidiaries, we must also analyse the beneficiaries. Keep reading to understand what Government subsidies are and how they work.
What Is Subsidy?
Subsidies refer to certain benefits provided to the public by the Government to promote their financial well-being. This economic support can be initiated as multiple tax rebates or also in the form of direct cash payments for some commodities or services. Gaining these discounts helps the citizens avail necessary items, often at prices much lower than their production costs.
How Do Subsidies Work?
The Government can subsidise services and commodities related to a specific industry following a certain principle. In this relation, the goal is to help the public finances and create the optimum thriving environment for each industry. However, the most common subsidies implemented by our Government include business loans, funding schemes, reduced taxation, cooking gas, electric vehicles, solar panels and many more.
Even before finalising the amount, the type of subsidy is decided so that designated authorities can take optimum preventive actions on par with the current demand.
For instance, by analysing the market demand for a particular food crop, the Government can buy the desired surplus in advance at a wholesale rate. Otherwise, in some situations, the Government pays for fertiliser, power and seeds.
What are the Types of Government Subsidies?
A list of indispensable commodities in one’s day-to-day life is carefully included within the subsidising umbrella. Furthermore, special subsidies are determined for each industry, such as:
- Food subsidy: In India, food items which are to be sold at decreased prices vary from one region to another. However, the Government supplies a few common items like rice, wheat, cooking oil, etc., to its citizens under the BPL class at a subsidised rate.
- Export/import subsidy: To encourage small domestic businesses to diversify their customer profile, the Government announces lucrative export subsidies. Again import subsidies play a crucial role in boosting production across various industries. These subsidies include low-cost loans and tax exemptions.
- Education subsidy: It is undeniable that higher education at renowned institutions is excessively costly these days. However, the Government arranges for discounted tuition fees, especially for deserving candidates.
- Fuel subsidy: Indian Government pays a cost margin between the selling price of fuels and their actual cost. The sole purpose behind this initiative is to ensure that even the commuters who travel to their workplace on bikes daily can afford to continue doing so with ease.
Who Contributes to the Overall Budget Allocated for Government Subsidies?
Many of us might question who pays for governmental financial aid. Well, the straightforward answer is the taxpayers’ contributions that are partially used for subsidies. These taxes include direct and indirect taxes levied on the citizens of India.
From the above discussion, you can say that a decision to expand subsidy sanctions directly affects people’s tax burden. Additionally, the Government needs to adjust its budget allocations in other sectors to compensate for the increased cost. At times the Government decides to print extra cash to fulfil the oath of providing subsidies.
In many ways, the economic growth of a nation faces challenges whenever a new provision arises regarding grants. Economists point out the decreasing capacity of Indians to buy essential goods whenever the tax rates go up. One can now debate that subsidising products ruin the efficiency of a country from a GDP perspective.
Here is when the question emerges: why do the common people strongly demand governmental reforms focused on lowering product prices? All apparent negativities do not provide the complete image, so you must know the advantages associated with subsidies. The next portion of the article focuses on the end goals. To learn about the governmental intentions of introducing subsidising policies, keep reading.
What is the Purpose of Issuing Government Subsidies?
When you review any subsidy bill of the Indian Government for an entire fiscal year, you will see that figures are appearing in lakhs of crores. This is because a significant portion of the Indian population falls below the poverty line. Again these funds are allocated across a range of sectors.
In India, the primary goal of normalising subsidies is to improve the affordability of essential goods, particularly fuel and food items. But, apart from this perspective, there are a few more reasons that inspire our Government to launch similar economic support schemes.
- Tax exemptions for businesses that intend to develop new factories or plants in underdeveloped zones that will positively impact industrialisation.
- Emergency funding is planned to improve the production of certain sectors which otherwise would have suffered from inadequate capital.
- A qualified pool of employees gets an opportunity to work in relatively new industries. This, in turn, contributes to the GDP development of India as the beneficiaries start working after gaining knowledge through subsidised education.
Currently, there are certain loopholes in the subsidy chain, which many economists are criticising. However, they are also being recognised by the concerned ministry departments, and immense efforts are being put in to make subsidies meaningful and ethical.
Are Government Subsidies Good or Bad for India?
India is full of young citizens, and as a country with over 130 crores of population, the national leaders minutely assess associated repercussions so that these grants do not lead to an idle attitude among the citizens with otherwise huge potential. However, subsidies, as a noble initiative, are desirable by all citizens.
Poor people who are deprived of essentials like basic food, cooking fuel and lacking quality education can immensely benefit from these centrally approved initiatives. But the main problem arises when any subsidising proposal gets passed without considering the long-term consequences.
Instead of demanding lower prices of essential items, if the population understands the fundamental mechanism, there will be fewer protests. For instance, if you pay higher for LPG cylinders for the upcoming 5 years, chances are high that existing authorities can plan for a better solution in a few forms of renewable energy sources. Moreover, the reduction of subsidies can help the Government to spend more in other key areas of development like industrialisation, healthcare, funding small and mid-scale businesses and much more.
Subsidy as a concept should be welcomed with open arms as long as it can help the needy. If entrusted bodies can eradicate the current leakages in the system, then the active subsidies will help the backward classes emerge as a prominent contributor to India’s overall growth.
Although many government subsidies distort equilibrium in the market, the Government tries to maintain a balance with these schemes. These initiatives speak for the Government’s rigorous efforts towards rationalising the prices of essential things.
Thus depending on consumer behaviour across various sectors, the Government must approve initiatives to see the optimum results.
Frequently Asked Questions
What are some complaints about government subsidies?
Government subsidies to some industries can lead to market distortion, causing economic losses for other sectors deprived of government support. An innovative product or service may fail to reach the masses due to the policymakers’ ignorance, which would have otherwise solved society’s pressing issues.
What is the effect of subsidies on the Indian economy?
Government subsidies boost resource allocation to some of the preferred sectors. For example, some subsidies aim to offer petroleum products at an affordable cost which indirectly improves the GDP of India. Again the subsidies allotted for domestic industries allow them to produce goods at internationally competitive prices. This lets the concerned industries export more, promoting growth in the sector and increase in foreign reserves among other benefits.
What are direct vs. indirect subsidies?
Direct subsidies announced by the government involve financial aid to some specific sectors through fund transfers such as direct fund transfer as LPG subsidies, subsidies on food under PDS, etc. These initiatives directly impact the course of businesses.
On the other hand, indirect subsidies refer to certain steps taken by the government to reduce industry production costs, and these initiatives do not involve direct cash payments to that specific industry. Low-interest loans and tax breaks are examples of indirect subsidies.