Economic subsidies are the solution to a problem or are they themselves a problem?
Discuss the meaning and significance of subsidies in India.
Explain the reasons and benefits of subsidies provided by the government.
Highlight the challenges like a short-term expensive solution with huge distortion of a market-based economy.
The subsidy is a government incentive that aims to promote the socio-economic development of the nation as a whole. India on the eve of independence was left with the upheaval task of socio-economic development. In that era, there were so many challenges for India in every sphere be it industry, health, agriculture, education, etc. our constitution maker envisaged India as a welfare state & subsidies are one of the quintessential attributes of any welfare state.
However, despite spending lakhs of crores of rupees on subsidies there is no or very low transformational change or impact has been seen on the standard of the living of masses. Various scholars have discussed many challenges regarding the subsidies, some are as follows:
Subsidies should be at specific development, on achievement of these specific objectives it should be phased out but in a welfare state like India, it became a politically sensitive issue.H
igher subsidies push up fiscal & revenue deficits.
Oone of the huge sharing of subsidies is getting to the agricultural sector & most governments have failed to ensure rational & sustainable use of subsidies.
subsidies on fertilizer led to an excessive distortion of agricultural land.
huge subsidy of the government increases on the railway sector, yet it is considered a loss-making entity.
Overall we can say that the root cause of the problem is not a subsidy but related to its targets. We can enhance & rationalize it by applying direct benefit transfer to targeted persons. Good steps like neem coated urea, JAM trinity, etc. should be strengthened and promoted.