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Question – 1. What are subsidies? Explain the criticality of subsidies in social and economic development.


AnswerA subsidy is a form of financial aid or support extended to an individual or firm generally with the aim of promoting economic and social policy.

Importance of subsidies for social and economic development

  • Improve standard of living
    Standard of living of certain sections need to uplifted and this is possible only through State support in form of subsidies. Subsidies in improving living standards include housing subsidies, fuel subsidies, electricity etc.
  • Food security
    A large section of Indian population is dependent on government’s subsidised food grains to survive. Without the subsidised food, they may face nutritional deficiencies and hunger related problems.
  • Health and education
    Poorer sections of society are provided health and education subsidies in form of educational scholarships, cheap loans and also free treatment. This will go a long way in improving work capacity and boost GDP growth.

Concerns about subsidies

  • Fiscal burden
    Many states and the centre are  facing fiscal deficit as a result of subsidies. The inability of government to shore up resources has had effects on capital expenditure.
  • Inflationary trend
    Subsidised items will create artificial demand, over and above the normal numbers. This is sure to cause inflationary trends in the economy.

Thus, a commodity must be determined if it qualifies as essential. Only essential items should be subsidized for only a small section of people, who are unable to access them without government support.

Tags: GS 2 (Governance)


Updated on 21 Jun 2022 |   Added on .21 Jun 2022  |  by admin