SUBSIDY CONCEPT TYPE & SIZE
SUBSIDY TYPES IN INDIA
SUBSIDY Is often defined as the opposite of tax & originates from latin word “subsidium” –which means assistance from behind. Subsidies can be successful if ,
- They target the right segment i.e. they should not be open to all as in india.
- They should be closed ended at least for some i.e. subsidies should be provided only for a certain length of time.
- They should have a target in mind & they should be transparent in delivery & towards achieving social welfare objectives.
Subsidy classification based on use, end user, necessity & target.
- PUBLIC GOODS
- Services in this category include municipal utilities, defence, universal vaccinations, etc.
- These are services which individuals cannot take care or provide for themselves.
- The services in this category are those which are commonly used by all citizen.
- Not providing these subsidies can amount to serious security risk in terms of personal & health security.
In public debates & other scholarly discussions, there is wide ranging concensus on continuation of this subsidy type.
- MERIT GOODS.
- Services in this category include primary education, primary healthcare, medical education, flood control measures, food subsidy, etc.
- Goods under this category are those that benefit society more than the individual who directly receives the service.
- Another important aspect of this service is that these services cannot be scaled up at short notice.
There is wider concensus on continuation of this subsidy type.
Primary education helps in success of government programmes as seen in srilanka where it led to reduction of child & maternal mortality.
Primary healthcare helps a society in disease prevention & stops it from escalating, and reduces the cost on secondary and tertiary healthcare, particularly in a country like india where more than 80% healthcare expenditure is out of pocket type.
Floods lead to a lot of loan writeoffs thus burdening govt. & financial institutions, better way out is to invest one time to ward off this eventuality.
- Non-merit goods
- Services in this head are pilgrim subsidy, subsidy on fertilizers, subsidies on diesel and petrol, etc.
- Goods under this category are those that benefit society less than the individual who directly receives the service. Subsidies on fertilizer is more used by rich farmers as against poor farmers, and subsidy on petrol and diesel is more appropriated by the rich than poor and it doesnot help poor to the extent intended as a result government is trying to deliver subsidies via. DBT(direct benefit transfers).
Subsidies Vs incentives
Subsidies are either provided in cash or in kind or by impacting markets in a manner that leads to achieving one or all of the following objectives:
- To achieve a minimum basis standard of living for all citizen.
- To help people escape vicious cycle of poverty.
- To reduce rich-poor divide to the extent possible.
Incentives are provided for doing certain things in a certain way, the notion behind this is that it can help govt. achieve certain objectives.
- The idea behind these subsidies is achieving the larger social good.
- These are intended to benefit the society but are delivered via. The rich.
- These subsidies either help increase production, or or reduce pollution or increase exports or increase jobs
Quantum - Size Of Subsidy
FY21 - Expenditure on food, fertilisers and fuel, which is government's largest revenue expense after interest payments, soared to an estimated Rs 5.95 lakh crore on these items in FY21 — a 161% increase over the pre-Covid year which is nearly 3% of GDP in FY21.
In FY22, the government had hoped to bring down the expenses on subsidies to Rs 3.35 lakh crore or about 1.5% of GDP. During the year, however, the government has had to step up commitments towards free foodgrain and has announced additional subsidy on fertilisers. Free foodgrain, under the Pradhan Mantri Garib Kalyan Anna Yojana, is being provided until March 2022.
- The estimated outgo on this is Rs 3.9 lakh crore, for food subsidies.
- The government fertiliser subsidy bill reached an all-time high of Rs 1.4 lakh crore.
The government fertiliser subsidy bill reached an all-time high of Rs 1.4 lakh crore, in FY 2022.