Impact of Subsidy on Indian Economy

1. Impact of Subsidies on the
Indian Economy
By-
Manas RanjanTripathy (L)
Garima Rajput
Mohit Khanna
Navneet Malik
Nilanjan Ghosh
Group 2, MBA IB

2. What is Subsidy??
• Subsidy is a benefit given by the government in the form of a cash payment,
tax reduction, etc. to bring out desired changes by effecting optimal
allocation of resources, stabilizing the price of essential good & services and
redistributing income in favor of poor people
• Types:
 Direct
 Indirect

3. India
• Developing Nation
• Population- 1,210,193,422 (2011 Census)
• Literacy Rate- 74.04% (2011 Census)
• Unemployment Rate- 4.9%
• Per Capita Income-US $ 1499 (2013)
• Below Poverty Line- 21.9% (2011)
• Exports- US $ 314,405.30 Million (2013-14)
• Imports- US $ 450,199.79 Million (2013-14)

4. Objectives of Subsidy in India
• Achievement of social policy objectives including redistribution of income,
population control, etc.
• Increase Employment byWage Subsidies to labour intensive industries
• To Promote Exports
• To Educate People
• Promote Agriculture through subsidy to farmers
• Feed poor people through food subsidies
• Promote Political Interests

5. IS SUBSIDY REALLY BENEFICIAL ??

6. Positive Impact
• Lower Cost of Living
• Increase in Employment
• FarmersWelfare
• Export Promotions
• Affordable food to the poor

7. Negative Impact
• Subsidies often promote inefficiencies
• Over- subsidization could adversely affect environment and allocation of
resources
E.g. Over-utilization of subsidized fossil fuels; over-utilization of fertilizers
• Fiscal deficit as expenditure increases
• Higher Prices (supply remaining constant, demand of subsidized products
increases)
• Regional Discrepancies
• Hampered growth of producers producing subsidized products due to lack of
timely payments by govt. and also low prices

8. Subsidy has many negatives, but…..

9. Subsidy is necessary to an extent…..
• India is a developing nation
• Large part of our population is poor
• Literacy rate is also quite low
• Imports far outweigh Exports
• Promotion of Agriculture and safeguarding farmers is needed

10. Subsidy Bill (2014-15)
The New Govt has cut down the Subsidy on Fuel and a target of
60% reduction has been set for FY 2015

11. Conclusions
• Better implementation is needed so that the benefits actually reach the needy
• Subsidy on Fuel must be cut down
• Expenditure on Education must be higher
• A better economic environment and infrastructure must be created to promote
trade
• Money must also be diverted to improve agricultural techniques
• Slow Cutbacks on subsidy necessary as they hinder growth and impact the
economy adversely in the long run