What is Subsidy – Definition, Types, and Government Schemes

You must have come across the word ‘Subsidy’ that the government extends on different schemes. Before going into its implications, it is basically very important to know subsidies meaning. A subsidy can be considered as a form of financial aid extended by the government in support of particular sectors, industries, or activities. Generally speaking, it is used to decrease the cost of any goods or services, increase production, or perhaps attain social welfare goals. There are also various ways in which subsidies can be made, including direct cash payments or tax breaks on goods of necessities. They often target struggling businesses, stimulate economic growth, or make basic necessities more affordable for consumers. These subsidized schemes are meant to benefit varied sections of society; here, we will be discussing all the things related to the subsidy.

Subsidy

The term subsidy refers to the financial assistance in the form of discount or monetary grants by the Central government to public entities or private institutions. The objective is to make the products offered by these institutions affordable for public consumption. The transfer of money to the public/private institutions induces them to sell the products at lower prices. The subsidized products are necessary for the larger public good and are a means of supporting the community’s 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. Indian government subsidies list is available on the internet, however if you need detailed information that is not available on the internet, you can leverage Right to information (RTI) to find the detailed information on subsidies that are available and the ones that you can benefit from.

What are the different types of subsidies in India 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. What is subsidy amount? This is something that the government decides based on the need factor of the commodity or service and the unaffordability factor for the broader population. There are different types of subsidies offered by the government; some of the examples of subsidies are:

• Food Subsidy : Food is a basic human right. Without food there is no survival, and food as a resource should be available to everyone. These subsidies are provided by the government to the wider population, food subsidies enable the Indian government to keep the population from starving and ensures that food that is a basic necessity is available to everyone, even those who cannot afford it.
• Education Subsidy : After food and shelter, education is a resource that should be made available to all. Although, it is not a necessity, rather a basic human right! By giving education subsidies, the Indian government ensures that the education as a right is made available to everyone, irrespective of their social and economic status. Education subsidies play a major role in upliftment of the population, by the means of education.
• Export/Import Subsidy : A nation’s economic development greatly depends upon their trade with other nations. This is facilitated by import and export of goods and services to fill the demand supply gap throughout the world. By giving import and export subsidies, the government enables the traders to have a more efficient trade with other countries. With subsidies on import and export, the participants are encouraged to trade more and contribute to the nation’s economic development.
• Housing Subsidy : Shelter is among the basic necessities for humans. Unfortunately for us, a big number in our population still does not have a roof over their head. Since, the market demand and supply is constantly driving the prices upwards, it is becoming increasingly difficult for less fortunate people to afford housing. To enable the less unfortunate with buying shelter, the government offers housing subsidies, These subsidies help drive down the full and final prices of the houses and increase affordability. Special schemes are run and affordable projects are also initiated to help this cause.
• Oil & Fuel Subsidy : Oil and fuel helps the nation operate. Literally every sector requires energy in some shape and form to be productive. Considering the fact that we are still dependent upon renewable sources of energy, the industries rely upon oil and fuel to operate. To help drive up the productivity of the businesses, the Indian government offers subsidies to reduce energy costs. These subsidies in the form of oil & fuel subsidies enable the companies to operate more efficiently and thus help develop the industrial landscape of the country.
• Tax Subsidy : One of the main goals that the government has is to promote the industries. To help industries grow, the government helps them by reducing costs. Government has no control on the cost associated with running a business. However, they have direct control on the taxation! Indian Government offers tax breaks and tax subsidies to enable the companies to reduce costs related to taxation and increase profitability. This has a waterfall effect on the development of the economy.
• Transport Subsidy : Just like other types of subsidy, transport subsidy is a benefit given to the population to enable easy and cheap transportation. While the subsidy amount may vary to serve different demographics, it can range from being 100% free to a certain percent off.

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

Government offers many subsidies in entrepreneurship, especially in the import and export industry. 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 cost and the MRP.

What is the different category of subsidies in India?

Depending upon the social and economic impact, the subsidies can be broadly divided into two categories, these are:

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?

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

Cash Subsidy It is a direct supply of finances to people or an enterprise by a government or institution to alleviate some economic loss or to influence certain behaviors. Such can be in the form of direct payments, credits, or grants. Cash subsidies stimulate economic activities because it increases the money-spending power of the population but tends to create dependency and fiscal burden if not properly managed. It includes unemployment benefits and food stamps. Finally, cash subsidies are one of the ways used to attain economic and social goals. 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. Such concessions are, in effect, subsidies that reduce the tax liability of individuals or businesses and thus give them financial relief with incentives for particular behavior thought to be beneficial to their investment or job-creating activities. Indeed, such concessions can stimulate economic growth through cash-flow enhancement and specific activities/sectors that flow from such concessions. Through the tax concessions, the individual’s or companies’ tax obligations are reduced.

• Interest subvention

Reduced interest rate 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.

What are the different subsidy schemes launched by the government?

Some of the welfare schemes launched by the Central government are given below.

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.

What are the benefits of subsidies?

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.

Summary

Subsidies are forms of fiscal aid rendered by the government to certain sectors, industries, or activities, which reduce the costs, and help maximize profits. The different modes of subsidies are: A direct cash payment Tax exemption Subsidized prices for essential commodities Subsidies lower the prices of goods for the public, thereby subsidizing the ailing business. Subsidies become catalysts in ensuring that essential commodities reach the masses.

In India, the range of subsidies can be divided into food subsidies, education subsidies, export subsidies, housing subsidies, oil and fuel subsidies, tax subsidies, and transport subsidies. Each subsidy answers a different problem, such as food subsidies provide the poor with basic needs to achieve nutritional requirements; education subsidies, to learn; and export subsidies, to stay competitive in the external market. Housing subsidies aim to make shelter cheaper, and oil and fuel subsidies support energy costs for industries. Tax subsidy can be defined as the reduction in tax burdens that will stimulate business growth.

Subsidies can be categorized into two broad categories i.e. economic subsidies, and social subsidies. Some of the targeted areas include healthcare, irrigation, and women empowerment. Generally, subsidies differ in methodology; some examples include cash transfers and tax concessions and lower interest rates to support the targeted sectors.

For instance, there are several government schemes like technology upgradation fund scheme, and the prime minister employment generation programme for the growth of modernization of the industries.A subsidy benefits the consumer of essential goods by reducing their prices, employing more people, and finally eradicating poverty. Summing up, subsidies provide some crucial incentives to boost competitiveness and living standards within the population at large.

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Subsidy FAQs:

1. Are there any disadvantages of subsidies?

Yes, there are several disadvantages of subsidy to society. Some of the disadvantages are high taxes, shortage of goods, subsidy leakage, etc.

2. What are the different subsidies provided to the farmers?

The different subsidies provided to the farmers by the government are:  Input subsidy: It is on fertilizer, seed, power irrigation, bank loan, irrigation, etc.  Price subsidy: MSP is declared to ensure farm products are sold at or above MSP.  Infrastructure subsidy: To install solar pumps, etc., are a kind of infrastructure subsidy.  Export subsidy

3. What is the direct benefit transfer scheme?

It is the scheme launched by the government to provide financial assistance directly to the beneficiary’s account without the involvement of any middleman.

4. What is the highest subsidy in India?

The food grains and other eatables provided under the food subsidy is the highest in India. The food subsidy is distributed through PDS.

5. What are the different modes of subsidy administration?

The different modes are –  Subsidy to producers  Subsidy to consumers  Subsidy to different producers of inputs  Providing incentives instead of subsidizing  Production/Sales through Public enterprises  Cross subsidization

6. What is PMAY or Pradhan Mantri Awas Yojana?

It is a central scheme launched by the government to provide a house to the urban poor. The scheme was launched in 2015 and intends to provide a pucca house by 2022.

7. Is farm subsidy beneficial for farmers?

Farm subsidy is essential and very beneficial for small farmers as they can not purchase the fertilizers, seeds etc., at the market prices. It helps in improving productivity besides fighting poverty at the rural level.

8. Is the fertilizer subsidy given directly to farmers?

No, the farmers are not given subsidies directly as it is not administratively possible to provide a direct subsidy. The farm subsidy is based on various parameters and the quality and quantity of farmers’ products.

9. Why is the subsidy system often criticized?

There are several loopholes in the system which lead to subsidy leakage. Subsidy distribution is criticized because instead of the direct beneficiaries, the middle man in collusion with corrupt officials loots the subsidy meant for the poor.

10. Who can apply for the NREGA scheme?

Any Indian national residing in rural areas can apply for the NREGA scheme. Under the scheme, he/she is entitled to 100 days of guaranteed employment.

11. How can small businesses and entrepreneurs benefit from government subsidies, and what are the key business schemes available to them?

Small businesses and entrepreneurs in India can reap substantial benefits from government subsidies, such as financial support, tax incentives, and technology upgradation. Key business schemes include the ‘Make in India,’ ‘Startup India,’ and ‘MUDRA Yojana.’ Subsidy loans, a component of these schemes, offer low-interest loans with reduced collateral requirements, facilitating access to capital for business growth. These incentives aim to promote economic development and foster entrepreneurship.

12. What are the criteria for eligibility to apply for business-related subsidies, and how can one navigate the application process successfully?

Eligibility criteria for business-related subsidies in India vary based on the type of subsidy. Common types include capital subsidies, interest rate subsidies, and technology-based incentives. To navigate the application process successfully, businesses must thoroughly research specific subsidy programs, meet their respective eligibility requirements, prepare necessary documentation, and submit applications through relevant government agencies or financial institutions. Subsidized loan definition is really easy to understand – A subsidized loan is a type of loan where the government pays the interest while the borrower is in school or during grace period and deferment. The cost of the loan becomes altogether cheaper for the borrower. Subsidy loans, a popular option, provide financial aid for various sectors, helping businesses thrive.

13. Can you provide examples of successful businesses that have significantly benefited from government subsidies, and how has it impacted their growth and operations?

Certainly! In India, various businesses have thrived due to government subsidies. One notable example is the agricultural sector, benefiting from subsidies on fertilizers and seeds, leading to increased production and improved livelihoods for farmers. Additionally, small and medium-sized enterprises (SMEs) have grown with subsidy loans, which offer lower interest rates, aiding in their expansion and job creation. These subsidies have positively impacted economic growth and sustainability.

14. Are there any recent developments or changes in government subsidy programs, especially those geared toward supporting businesses and entrepreneurship?

As of my last knowledge update in January 2022, the Indian government had various subsidy programs to support businesses and entrepreneurship. These subsidies encompassed areas such as agriculture, technology, and renewable energy. Subsidy loans were offered to eligible entrepreneurs to facilitate their ventures. However, it’s essential to consult up-to-date sources or government websites for the latest developments, as these programs may evolve over time.