What is the meaning of subsidy, how and why it is given ( What is a subsidy definition, meaning, type and How to get and reason of subsidy )
The term ‘subsidy’ is one you’ve probably encountered frequently in different settings. It’s natural to have questions when you hear it, such as: What does subsidy mean? Who is responsible for providing it? Who receives it? In today’s article, we’ll clarify these points for you. We’ll explain what a subsidy is, outline the various types, and examine the pros and cons associated with them.
The meaning of subsidy.
Financial assistance provided by the government is referred to as a subsidy. In simple terms, a subsidy is the benefit given to an individual, business, or organization by the government. Typically, subsidies come in the form of cash payments or tax reductions.
Reason behind Subsidy
The government offers subsidies to reduce the financial strain on citizens. These financial aids are frequently used to support social, economic, or fiscal initiatives. Typically, subsidies target industries that are facing challenges. If a sector is experiencing substantial losses, the government intervenes with financial support to foster recovery. Moreover, when the prices of certain goods soar, subsidies are provided to help bring those costs down for the public.
How to get business subsidy
Subsidies can be categorized into direct and indirect forms. When a subsidy is provided as a cash payment, it is specifically classified as a direct subsidy. On the other hand, any assistance that comes in the form of non-cash benefits, such as tax exemptions or reduced interest rates on loans, is considered an indirect subsidy.
How to Calculate
The subsidies provided in India are calculated with careful consideration of multiple elements. The government uses a defined formula to establish the subsidy amount, factoring in aspects such as the loan size, interest rates, overall expenses, the type of product, and costs associated with governmental activities.
Type of Subsidy
Subsidies come in various forms, and below is information about some of these different types of subsidies, outlined as follows:
Production Subsidy
Production subsidy refers to the financial assistance provided for a specific product. Typically, subsidies are granted when a product is produced, sold, or imported. The government offers production subsidies to encourage individuals to increase the output of that particular product.
Employment Subsidy
Employment subsidies are provided with the aim of reducing unemployment in the country. Through these subsidies, the government encourages entrepreneurs to create more job opportunities.
Transport
The financial support provided by the government for public transportation is known as transport subsidy. Typically, these subsidies aim to reduce pollution by encouraging people to opt for public transport instead of private vehicles.
Tax
The government grants tax subsidies, which lead to tax reductions for recipients. These subsidies serve multiple purposes, including the encouragement of certain industries and the generation of additional job opportunities within those fields. Additionally, the government provides these subsidies to large business owners to support the expansion of their enterprises in the nation.
Religious
Religious subsidies function similarly to other types of subsidies. These are provided by the government to support pilgrims during their journeys, ensuring that the financial burden of their travels is not overly heavy.
Subsidy Given by Indian Government
Each country provides subsidies based on its economic conditions and governance. Similarly, the Indian government offers various subsidies for different sectors within the country, which are as follows:
Subsidies for the food industry
To enhance and promote the food industry, the Government of India has decided to provide subsidies within this sector. These subsidies are extended across various industries, including dairy, aquaculture, poultry, and fruit production.
Fertilizer Subsidy
A significant portion of India’s population is engaged in agriculture, which incurs various expenses for farmers. One of these expenses is the cost of fertilizers. To alleviate this financial burden, the Indian government provides subsidies on fertilizers. This initiative helps reduce the overall costs farmers face during the farming season, allowing them to purchase urea and other fertilizers at lower prices.
Subsidy on food items
Food subsidies are provided by the government to support low-income families living below the poverty line. These families receive financial assistance through subsidies on essential food items such as rice, flour, and sugar, helping to alleviate their economic struggles.
Subsidy on Haj Pilgrimage
A significant portion of India’s current population consists of Muslims. Each year, many Muslims travel abroad for their pilgrimage to Hajj. This journey can be quite costly, and not everyone can afford the expenses involved. To assist, the Indian government provides subsidies to Hajj pilgrims annually. However, the issue of these subsidies is currently under legal scrutiny in the Supreme Court of India. In addition to Hajj, the government also offers subsidies for trips to Kailash Mansarovar and the Nankana Sahib Gurudwara.
Fuel Subsidy
The Government of India sells fuel at subsidized rates, which includes diesel, kerosene, and LPG. Kerosene and LPG gas cylinders are provided to the public at lower prices. The subsidy amount for LPG gas cylinders is directly transferred to people’s bank accounts by the government.
Subsidy in the textile industry
To promote the jute industry in the country, the Indian government provides various subsidies to jute-related sectors. This initiative aims to further enhance the growth of this vital industry.
Subsidy for Small Scale Industries
To encourage individuals to start new businesses, the government provides subsidies for small industries. This initiative aims to make it easier for small entrepreneurs to establish their ventures. Additionally, these businesses benefit from tax exemptions.
Disadvantages of Subsidy
Subsidies are offered by the government with the main aim of providing financial support to the populace. The funding for these subsidies comes entirely from the taxes collected from the citizens. This leads us to ponder whether the subsidies are genuinely advantageous. If we take a closer look at the benefits and drawbacks of subsidies, we can pinpoint a few significant disadvantages.
Someone else benefits
The government provides various types of subsidies, but it’s not always guaranteed that these funds reach the intended recipients. Often, the subsidy amounts end up benefiting someone other than those in genuine need.
Even the rich get subsidies
Every country has both wealthy and poor individuals, and often, subsidies provided by the government are available to both groups. However, wealthy individuals typically do not need these subsidies, yet they still benefit from them. For instance, the Indian government offers subsidies on gas cylinders, which are accessible to everyone. As a result, even families with strong financial standing can take advantage of this support.
Incorrect utilization of subsidy
The Indian government offers various subsidies, one of which is aimed at promoting small industries. However, it’s not guaranteed that these subsidies are utilized effectively. For instance, if the government provides subsidies to 100 new small businesses, only about 80 are likely to succeed. This means that the funds allocated for the remaining 20 businesses may end up being wasted.
Higher tax burden
The expenses incurred from providing subsidies are covered by the taxes paid by the residents of the country. As a result, those who contribute to the tax system face an increased financial burden.
Decrease in product
When the government provides a subsidy for a product, it leads to a decrease in the product’s price. This drop in price typically boosts demand, which can result in a shortage of that product within the country.
Advantages of Subsidy
On one side, subsidies have their downsides, but they also present a range of advantages, such as the ones listed below.
People from weaker sections get benefit
The government provides subsidies that assist these communities. Thanks to the subsidies on food products, those in weaker sections enjoy significant financial relief.
Farmers get help
Farmers in India are facing tough times. Even with substantial investments in their farming practices, they often find it hard to earn a decent profit. To help ease this financial strain, the government is working to reduce costs by offering subsidies on fertilizers and seeds.
Attempts to reduce unemployment
The government is working to reduce the rising unemployment in the country through various subsidies, including those for employment. By providing these subsidies to major industries, the government aims to support the youth of the nation. Additionally, by offering subsidies to small businesses, the government can create new job opportunities across the country.
Conclusion
In any country, the government aims to assist its citizens through subsidies. Whether these subsidies are directed towards industries, farmers, or the underprivileged, they ultimately benefit the government as well. For instance, when the government provides subsidies to industries, it leads to the creation of numerous jobs within the country. Similarly, offering subsidies to farmers not only supports them but also ensures that essential food items are produced domestically, reducing the need for imports from other nations.