Subsidies in India - Subsidy Issues in India

Subsidy Issues in India

Subsidies have proliferated in India for several reasons. In particular this proliferation can be traced to 1)the expanse of governmental activities 2) relatively weak determination of governments to recover costs from the respective users of the subsidies, even when this may be desirable on economic grounds, and 3) generally low efficiency levels of governmental activities.

In the context of their economic effects, subsidies have been subjected to an intense debate in India in recent years. Some of the major issues that have emerged in the literature are indicated below:

• Whether the magnitude and incidence of subsidies, explicit and implicit, have spun out of control; their burden on government finances being unbearable, and their cost being felt in terms of a decline of real public investment in agriculture.
• Whether agricultural subsidies distort the cropping pattern and lead to inter-regional disparities in development
• Whether general subsidies on scarce inputs like water and power have distorted their optimal allocation
• Whether subsidies basically cover only inefficiencies in the provision of governmental services
• Whether subsidies like (food subsidies) have a predominant urban bias
• Whether subsidies are mistargeted
• Whether subsidies have a deleterious effect on general economic growth of sectors not covered by the subsidies
• Whether agricultural subsidies are biased against small and marginal farmers
• How should government services be priced or recovery rates determined
• What is the impact of subsidies on the quality of environment and ecology