What is Subsidy?

Subsidy refers to the discount given by the government to make available the essential items to the public at affordable prices.

what is the purpose of a subsidy, what is subsidy with exampleSubsidy example, purpose: Subsidies help make items of daily needs affordable such as food and fuel, among others.

Subsidy refers to the discount given by the government to make available the essential items to the public at affordable prices, which is often much below the cost of producing such items. Specific entities or individuals can receive these subsidies in the form of tax rebate or cash payment. This helps to keep essential items such as food, fuel, fertilisers within the reach of poor people.

Purpose of Subsidy and how does it work?

As a large chunk of the population is below the poverty line, the government provides certain subsidies to companies to make some essential goods and services affordable to poor people. Keep in mind that these subsidies form a large part of the government’s expenditure. These are given to many entities in various sectors like agriculture, education, oil and food.

The Indian government’s subsidy bill for an entire fiscal year usually runs in lakhs of crores of rupees. A major factor in determining the government’s total subsidy bill is the international crude oil price, since India has significant dependence on imports to fulfill more than 80% of its energy requirements.

While petrol and diesel prices were deregulated and made market-linked, ending the government subsidy burden on these, kerosene and LPG (domestic cooking gas) remain under the government’s subsidy programme.

Benefits of Subsidies

  • Subsidies help make items of daily needs affordable such as food and fuel, among others. The government provides subsidized education, so that the youth of the country can become employable and thereby, contribute to the GDP of the country.
  • Subsidies are also given in the form of tax exemptions to certain sectors in a bid to promote industrialisation. Travelling, for instance, has become affordable with subsidies on public transport.
  • Notable examples of subsidy include the rural employment generation scheme called NGERA, midday meal programmes, healthcare, women empowerment and farm loan waivers. These are some examples of subsidies which have helped in empowering the marginalised, women and poor people of the country.

Why are Subsidies criticised?

Are you wondering why subsidies come under fire? Many times, they fail significantly in serving the very purpose they were provided for. They help the well-to-do sections of the society rather than the poor. To plug these loopholes in subsidy transfer, the government launched direct benefit transfer scheme in 2013, which became later linked to Aadhaar.

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