Subsidy
The term subsidy refers to financial assistance in the form of discounts or monetary grants provided by the Central government to public entities or private institutions. In simple terms, subsidy meaning refers to financial support given by the government to reduce the cost of goods and services for the public.
The objective of a government subsidy is to make products and essential services affordable for public consumption. The transfer of money to public or private institutions induces them to sell products at lower prices. The subsidized products are necessary for the larger public good and support community welfare.
Subsidies are provided by both the Central and the State governments and are a part of ‘non-planned’ expenditure. People receive subsidies in the form of cheap food products, tax rebates, cash payment, etc.
What are the different types of subsidies provided by the government in India?
The government’s main aim in providing subsidies is to ensure that the country’s population is not deprived of essential commodities. The subsidized goods are well within reach of the population. There are different types of subsidies offered by the government; some of them are:
- Food Subsidy
- Education Subsidy
- Export/Import Subsidy
- Housing Subsidy
- Oil & Fuel Subsidy
- Tax Subsidy
- Transport Subsidy
Broadly, the categories can be divided into five types, these are:
Food subsidy
The food subsidy’s main objective is to provide essential eatables to a large section of the population living below the poverty line in India. The subsidized food products are distributed through the PDS system in our country. The major food items supplied to the BPL families varies as per the region, but the common foodstuff includes:
- Wheat
- Rice
- Sugar
- Milk
- Cooking oil and more
Education subsidy
The Central government extends the education subsidy to eligible students to pursue higher technical and professional education.
Export subsidy
To make exports attractive and lend support to the companies, the government offer export subsidies. The export subsidies help make our products competitive in the international market and open new markets for domestic products.
Fertilizer subsidy
The government provides relief to farmers by providing the fertilizer at the discounted prices. The fertilizer is provided at a fixed MRP that is below the actual price; the government pays the difference between the actual coat and the MRP.
Under this government subsidy, fertilizers are sold at fixed MRP while the government pays the difference between actual cost and retail price.
Also Read- Government schemes for MSME
What is the different category of subsidies in India?
Depending on economic and social impact, types of subsidy are broadly divided into:
| Economic Subsidy | Social subsidy |
| Irrigation and Flood Control | Health Care |
| Transport | Education |
| Industry | Women empowerment |
| Communication | Sanitation |
| Power and Energy | Housing |
| Agriculture | Water supply |
How is subsidy implemented?
A government subsidy is implemented in different forms depending on the sector and beneficiary. Depending upon the recipient and the sector there are different ways by which the government provides a subsidy to the people; some of the ways are:
- Cash subsidy
The cash subsidy is a direct money transfer to the intended recipient’s account or the company by the government. Farm exporters, LPG subsidy, are examples of a cash subsidy.
- Tax concession
Another type of subsidy is the tax concessions given to the targeted sector. Through the tax concessions, the individual’s or companies’ tax obligations are reduced.
- Interest subvention
Reduced interest rates or interest payment waives off is another form of subsidy extended by the government to the targeted sector to facilitate growth or support the sector in challenging times.
Also Read- Government schemes for women entrepreneurs
What are the different subsidy schemes launched by the government?
The government’s main aim in providing a government subsidy is to ensure that citizens are not deprived of essential commodities. There are different types of subsidy offered in India. Some of them include:
| Scheme | Ministry | Description |
| Technology up-gradation fund scheme (TUFS) | Ministry of textiles (GOI) | To induct the latest technology for textile units. It is meant for the jute and textile industry. |
| Establishment/Modernization for the food processing industry | Ministry of food processing (GOI) | To setup, modernize, or upgrade food processing industries. It is applicable to all segments. |
| Integrated development of leather sector (IDLS) | Ministry of industries and commerce (GOI) | It is meant to upgrade leather-based industries for productivity gains. |
| Credit Linked Capital Subsidy Scheme for Technology Upgradation (CLCSS) | Ministry of MSME (GOI) | It aims to upgrade technology in the MSME sector and make them competitive |
| Technology and Quality up-gradation for MSME (TEQUP) | Ministry of MSME (GOI) | It aims to make the MSME sector energy efficient and increase their competitiveness. |
| Government subsidy for small business for cold chain | Ministry of food processing (GOI) | Its aim is to integrate the cold chain and preservation facilities from the farms to the end consumers. |
| Extension of financial assistance for coir units in the brown fibre sector | Ministry of MSME (GOI) | It provides financial assistance to different coir units. |
| Marketing assistance scheme by NSIC | Ministry of MSME (GOI) | It is meant to provide assistance for marketing products at various exhibitions, trade fairs, promotional events, and buyer-seller meet. |
| ISO 9000/ISO14001 certification reimbursement scheme | Ministry of MSME (GOI) | Financial assistance to the MSME sector for marketing. Bar code registration is encouraged, and the registration fees is reimbursed. |
| Support for entrepreneurial and managerial development of SMEs | Ministry of MSME (GOI) | The funding requirement of innovative business ideas is met through the scheme. |
| Lean manufacturing competitiveness scheme for MSMEs | Ministry of MSME (GOI) | It aims to encourage the MSME sector to adopt lean manufacturing techniques. |
| Prime Minister Employment generation programme (PMEGP) | Ministry of MSME (GOI) | Khadi and Village industries commission or KVIC implement the scheme, and State KVIC is also a partner. |
Broadly, the types of subsidy can be divided into major economic and social categories.
What are the benefits of the subsidy?
Understanding what is subsidy also requires understanding its benefits:
The government starts subsidy schemes for various purposes; some of the benefits are:
- Lower the prices of essential commodities and at the same time provide necessary essential commodities to a large section of the population at low rates.
- Subsidies to industries are meant to stop the decline in the industrial sector due to multiple factors. It is an indirect method to support employment and manufacturing in the country.
- Subsidized education has long-term benefits to the country and the society besides providing skilled manpower to industries.
- Subsidies like MNREGA help in fighting unemployment and poverty eradication in the country.
The subsidy is a type of incentive given by the government to individuals or industries to make them more competitive or live a dignified life respectively. It is provided through grants, cash, tax breaks, etc and has
extensive benefits to society.
What is the difference between a government grant and a subsidy in simple terms?
A government grant and a subsidy are both forms of financial support provided by the government, but their purpose is different. A subsidy is mainly given to reduce the cost of goods or services so that they become more affordable for people. For example, fuel, food, or fertilizer subsidies help lower the final price paid by consumers. On the other hand, a government grant is financial assistance given for a specific purpose such as starting a business, funding research, supporting education, or promoting innovation. While a subsidy makes something cheaper, a grant provides money to help an individual, organization, or business carry out a particular project or activity.
FAQs on Subsidy
1. What is subsidy in simple words?
A subsidy is financial help given by the government to reduce the cost of goods or services so that people can afford them easily. It lowers the final price paid by consumers or businesses.
2. What is subsidy meaning in economics?
In economics, subsidy meaning refers to financial assistance provided by the government to support certain industries, businesses, or consumers. It is used to encourage production, reduce prices, and promote social welfare.
3. What is a government subsidy?
A government subsidy is monetary support provided by the central or state government to make essential goods and services affordable or to support specific sectors like agriculture, education, or exports.
4. What are the types of subsidy in India?
The main types of subsidy in India include food subsidy, fertilizer subsidy, education subsidy, export subsidy, housing subsidy, and fuel subsidy. These can broadly be divided into economic and social subsidies.
5. What is the difference between a grant and a subsidy?
A subsidy reduces the cost of goods or services, while a grant is financial assistance given for a specific purpose such as starting a business, funding research, or supporting a project.
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