Subsidies

Notes

A subsidy is financial support by the Government to producers or consumers to lower the cost or price of a good or service. It may be explicit (shown in the Budget) or implicit (such as under-recovery and tax concessions, shown in the Statement of Revenue Foregone).

Types: merit subsidies (education, health, nutrition) and non-merit subsidies (power, irrigation, fertilisers, food for non-poor); cash, in-kind, input and price subsidies; export and interest subsidies.

Major Union subsidies

Food: the PDS under the National Food Security Act, 2013, with the Food Corporation of India; PM Garib Kalyan Anna Yojana gives free foodgrains (about 5 kg per person a month) to about 81 crore people for five years from January 2024.
Fertiliser: Nutrient Based Subsidy (NBS) for phosphatic and potassic fertilisers (since 2010); urea is sold at a controlled maximum retail price, with the Government paying the difference.
Petroleum and LPG: Direct Benefit Transfer for LPG (DBTL/PAHAL); Pradhan Mantri Ujjwala Yojana support for poor households.
Others: interest subvention on farm credit, PM-KISAN (₹6,000 a year income support, 2019), and export incentives.

Reform measures

Direct Benefit Transfer (DBT) from 2013, with the JAM trinity, to reduce leakages. "Give It Up" campaign for LPG (2015).
Shanta Kumar Committee (2015) on FCI restructuring (cash transfers, reduced NFSA coverage). Neem-coated urea, the Soil Health Card and DBT in fertilisers.

Pros: food security, support for the poor, price stability, merit goods and supporting farmers.

Cons: a fiscal burden (it crowds out capital expenditure), leakages and diversion, price distortions, inefficient use (overuse of urea and groundwater under free power), environmental damage, and benefit capture by richer households.

WTO angle: the Agreement on Agriculture classifies domestic support into Green Box (permitted without limit), Blue Box and Amber Box (limited by AMS; de minimis of 10% of the value of production for developing countries). India's MSP and PDS stockholding raise issues; the Peace Clause (Bali, 2013) protects India temporarily. The SCM Agreement covers non-agricultural subsidies.

Key Points

Subsidy: Government support to lower prices or costs; explicit or implicit.
Major: food (NFSA/PDS), fertiliser (NBS, urea), LPG.
Reforms: DBT, JAM, Shanta Kumar Committee, neem-coated urea.
Pros: food security, equity; cons: fiscal burden, leakages, distortions.
WTO: Green, Blue and Amber Box; Peace Clause.

MCQs

Q1. The Direct Benefit Transfer for LPG is known as: (a) PAHAL (b) Ujjwala (c) SVANidhi (d) Jan Dhan Ans: (a).

Q2. Under the WTO Agreement on Agriculture, subsidies that are permitted without limit are in the: (a) Amber Box (b) Blue Box (c) Green Box (d) Red Box Ans: (c).

Q3. The Committee that recommended restructuring the Food Corporation of India (2015) was headed by: (a) Shanta Kumar (b) Rangarajan (c) Kelkar (d) Chelliah Ans: (a).