0Subsidies are monetary assistance from the government to various industries, primarily to priority sectors like agriculture and allied activities.
Boon:
- Subsidies to small scale industries, especially export-oriented industries, are much-needed assistance since these industries face a financial crunch ( difficulty) that can be resolved by subsidy. Moreover, these industries are generally labour intensive and provide employment opportunities. The provision of subsidies to such industries accelerates the output and employment options and generates sectoral growth leading to economic growth from the grass-root level.
- Subsidies to agriculture and allied activities like fishing, animal husbandry, and so on provide the much-required finance for farmers and other artisans to buy inputs like seeds, fertilizers, etc. It helps reduce the financial burden, especially for farmers, since agricultural production is a gamble-- at the hands of nature. In case of a flood or drought, the farmers become financially vulnerable. At such times, a subsidy acts as a backbone and provides support for them to resume their cultivation.
Bane:
- However, subsidies are a drain on the treasury. As the economy grows and governments undertake more and more activities in the general public's interest, subsidies become a burden for the governments. Especially in developing countries like ours where the tax revenue is low and hence public receipts are down. The expenditure on subsidies, called a transfer payment, is a vast recurring burden for the government preventing it from actively engaging in other developmental activities.
- Another more relevant reason is that the beneficiaries of subsidies continue to enjoy the benefits without expanding their scale of production or diversifying their productive activities to non-subsidy areas of operation. It reduces their capacity to grow and significantly hampers sectoral; development.
