Implicit Subsidies

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In India, the term “implicit subsidies” refers to the different ways the government helps or gives money to certain areas or activities without making clear budgetary allocations or direct payments. These benefits are often built into the rules or policies of the country, and they can have big effects on the economy.

Here are some of India’s most important cases of hidden subsidies:

1.Subsidies for fuel: In the past, diesel, oil, and kitchen gas were sold by the Indian government at prices below what they were worth on the market. The goal of these handouts was to make these important products cheaper for most people. But they also put a big strain on the government’s budgets and changed how the market worked.

2.Agriculture Subsidies: India’s agriculture has long gotten hidden subsidies from the government in the form of help with things like fertilizers, electricity, and irrigation. The goal of these handouts was to make sure there was enough food for everyone, increase farming output, and help farmers make a living. But they have also made it harder to use resources well and changed the prices on the market.

3.Electricity Subsidies: The government has put in place tacit subsidies in the power sector to make electricity more available and cheap, especially for low-income families and farms. Cross-subsidization is used in these subsidies. Higher tariffs are charged to industrial and business customers to make up for the lower tariffs charged to household and farming customers. This way of doing things has made it hard for power distribution companies to make money and kept them from investing in the field.

4.Interest Rate Subsidies: The government has put in place programs like priority sector lending, which require banks to give a certain portion of their loans to economically weaker sectors like farmland, small-scale industries, and housing. By lowering the interest rates on these loans, the government hopes to encourage growth that benefits everyone and social progress. But these handouts can mess up loan markets and make it harder for banks to make money.

5.Public Sector Enterprises: India has a lot of public sector enterprises (PSEs) in the banking, energy, and telecoms businesses, among others. PSEs often get unstated help from the government in the form of promises, easier access to resources, or protection from competition. Even though the goal of these handouts is to help key industries and protect the public good, they can lead to inefficiency, a lack of new ideas, and a drain on public funds.

In India, implicit benefits have both good and bad results. On the one hand, they help make sure that prices are low, that people are taken care of, and that each industry grows. On the other hand, they can lead to budget gaps, changes in the market, and a bad use of resources. Policymakers still struggle to find the right mix between helping people who need it and making the economy work better. India needs reforms that reduce implicit supports, improve targeting methods, and encourage market-based solutions in order to grow in a way that benefits everyone.

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