A consumer is a person who purchases goods for his own private use. And yes a person getting benefit under subsidy is a consumer. Subsidies on the other hand can be defined as the incentive given by the government to individuals or businesses in the form of cash, grants that improve the supply chain of certain goods and services. Subsidies are often viewed as the converse of tax and are an instrument of fiscal policy.
Subsidies help both the economy and the people as well it has a long term impact on the economy such as the green revolution like indirect taxes they can alter relative prices and budget constraints which impacts decisions concerning production, consumption and allocation of resources.
It can be applied in different areas such as education, health and environment which merits justification as the benefits spread beyond immediate recipients and those benefits are shared by the population at large for the present and also for the future.
In India, as also elsewhere subsidies have become a significant part of government expenditure, these implicit subsidies not only cause a considerable draft on the already strained fiscal resources but may also fall on the angle of equity and efficiency.
Subsidies that are ineffective or distortionary need to wind out for uncontrolled and opaque growth of subsidies which can be deleterious for countries public finances. In the context of economic effects such as the agricultural subsidies which have had a distortionary effect as their impact had interregional disparities in development also suboptimal usage of scarce inputs like water and power induced by subsidies and could lead to systemic inefficiencies when observed at length.
Subsidies can be of various types
– Production subsidy
These kinds of subsidies are provided to increase the production of a good. For the manufacturers to increase their production the government helps them by compensating for some parts of production so that the manufacturing of the product increases. Due to his production and consumption of the product grows keeping the price the same.
– Consumption Subsidy
This subsidy occurs when the government offsets the costs of food, water, and healthcare.
– Export Subsidy
To encourage the flow of export the government subsidizes the cost. A country earns from its export and to keep the export going the government puts subsidies on it.
– Employment subsidy
This subsidy is given by the government to organizations ad companies so that they provide more job opportunities which will bring a better quality of economy to the country.
With subsidies, consumers are easily able to assess cheaper products and commodities. Markets that have positive externalities which are, extra benefits to society tend to be favoured in the fiscal policy of the government to provide a greater supply of goods and services.
Advantages of subsidies are in various forms such as lowering prices which are especially applicable in the area of fuel prices, particularly with global crude oil prices rising economies subsidies fuel costs in order to control inflation or crisis. They also prevent the long term decline of industry such as fishing and farming among the conventional industries even new and fast-growing industries benefits from subsidies. It also increases the supply of goods and services which the government wants the population to access such as water food and education. Hence, they provide an incentive in the form of tax credit or straight-up cash. Markets that have positive externalities are usually the ones that receive such benefits.
As there are advantages disadvantages also exist of subsidies as the greater supply of goods on lower prices could lead to a sudden rise in demand creating a supply shortage and ultimately it can lead to very high demand and creating a short supply which could cause an increase in prices. Though subsidies are usually effective and helpful it is hard to quantify the success of subsidies. The mode of fundraising to be used for subsidizing industries also imposes higher taxes hence, it is the people who provide the means to enable the government to subsidies
A person availing subsidies is a consumer, it could be an individual or an entity, directly or indirectly in various forms to offset market failures and externalities in order to achieve greater economic growth and efficiency. Hence, it is the end consumer who benefits from the subsidies and it is they who creates the demand and supply position which equally needs to be balanced by taxation to keep the subsidization on a positive trend. Government seeks to implement subsidies to enhance production and consumption in specific industries such as health, environment, education, as government helps suppliers through tax credit and reimbursement the lower overall price of their good and services is more than offset by the savings they receive.
It is the transfer of money from a government to an entity that leads to a fall in the price of the subsidized product thereby increasing its demand among the consumers whereas in comparison to subvention which refers to a grant of money in aid or support mostly by the government.
Hence, subsidies such as on energies which partially buffer domestic markets from higher global food prices if removed would impact local farmers and small producers by higher cost, therefore removal of subsidies to the consumers would repel the economy by exhilarating the cost of living it would undermine the economy.
Allocation of subsidies in an economy needs to be balanced in a manner that does not cause more than the socially best amount of the goods produced as the same would be sold in to lower the price which would result in deadweight loss due to a subsidy which is an economic inefficiency which is the reduction in consumer surplus.
The subsidy is very much related to the consumer as it refers to the discount given by the government to make available the essential items to the consumers at large at affordable prices, the purpose of which is to make the items of daily needs affordable such as food and fuel among others. There have been different subsidies provided to consumers and producers such as the
Pradhan Mantri Awas Yojana, subsidies are provided on various parts like agricultural subsidies, railway subsidies etc. Agricultural subsidies were originally instituted to stabilize the market help low-income farmers and aid rural development, unlike the traditional subsidies that promote the growth of product presently the prices of their products needed to be boosted hence limiting the growth of these crops.
The effect of subsidies can also be seen in reducing foreign competition with more competitive rates against foreign goods with subsidies targeting particular goods in-country by lowering the prices of these goods which have a positive effect on the economy. 2
— BY- Muskaan Rafique
University of Petroleum and Energy Studies