What Are Subsidies?

A subsidy is an incentive given to an individual, business, or institution, usually by the government. It is in the form of a cash payment or a tax reduction. Basically, subsidies are provided by the government to specific industries to keep the prices of products and services low for people to be able to afford them and also to encourage production and consumption. These are given to many entities in various sectors like agriculture, education, oil, and food.

Now, let’s take a look at the different types of subsidies:

1. Production subsidy

This type of subsidy is provided to encourage the production of a product. The government gives incentives to manufacturers to reduce their expenses while increasing their output. As a result, production and consumption grow, but the price remains the same. The drawback of such an incentive is that it may promote overproduction.

2. Consumption subsidy

This happens when the government reduces the costs of food, education, healthcare, and water.

3. Export subsidy

An obvious fact is that a country or state earns from its exports and exports help to balance its economy. That is why, to encourage exports, the government subsidizes the cost. However, this can be easily abused, especially by exporters who exaggerate the prices of their goods so that they receive a larger incentive, eventually raising their profits at the expense of taxpayers.

4. Employment subsidy

This incentive is given by the government to companies and organizations to enable them to provide more job opportunities.

What are the advantages of a Subsidy?

Subsidies help make items of daily needs affordable such as food and fuel, among others. The government provides subsidized education so that the youth of the country can become employable and thereby, contribute to the GDP of the country.


Subsidies are also given in the form of tax exemptions to certain sectors in a bid to promote industrialization. Travelling, for instance, has become affordable with subsidies on public transport.

Notable examples of subsidy include the rural employment generation scheme called NREGA, midday meal programs, healthcare, women empowerment, and fire. These are some examples of subsidies that have helped in empowering the marginalized, women, and poor people of the country.

Are you wondering why subsidies come under fire? Many times, they fail significantly in serving the very purpose they were provided for. They help the well-to-do sections of society rather than the poor. To plug these loopholes in subsidy transfer, the government launched a direct benefit transfer scheme in 2013, which became later linked to Aadhaar. Keep in mind that these subsidies form a large part of the government’s expenditure which is met by imposing higher taxes on its citizens.That’s all about subsidy. Let’s meet again soon with more amazing insights. If you liked this blog do comment and subscribe to our youtube channel Explified.