What is Subsidies?
Historical Background
Key Points
6 points- 1.
Types: Can be direct subsidies (e.g., cash payments, interest-free loans) or indirect subsidies (e.g., tax breaks, duty exemptions, free services, price supports, preferential loans).
- 2.
Objectives: To promote domestic production, support infant industries, ensure food security (agricultural subsidies), reduce consumer prices for essential goods, encourage exports, or foster the development of green technologies (e.g., electric vehicle subsidies).
- 3.
Impact: Can lead to market distortions, create unfair competition, impose a burden on government budgets, encourage inefficiency, and often result in trade disputes with other countries.
- 4.
WTO Rules on Subsidies: The Agreement on Subsidies and Countervailing Measures (ASCM) categorizes subsidies into: Prohibited subsidiescontingent on export performance or use of domestic over imported goods; Actionable subsidiescan be challenged if they cause adverse effects to other members; and Non-actionable subsidiesgenerally permitted, though this category was allowed to lapse in 1999.
- 5.
Countries can impose countervailing duties on subsidized imports that cause material injury to their domestic industries.
- 6.
Often a point of contention in international trade negotiations due to their potential to distort trade.
Visual Insights
Evolution of Subsidies in India
Timeline showing the key milestones in the evolution of subsidies in India, focusing on agriculture.
Subsidies have been a crucial part of India's economic policy, especially in agriculture, to ensure food security and support farmers. The focus is now shifting towards more efficient and sustainable subsidy models.
- 1947Independence: Initial focus on food security and agricultural subsidies.
- 1960s-1970sGreen Revolution: Increased fertilizer and irrigation subsidies.
- 1991Economic Reforms: Attempts to reduce subsidies but continued support for agriculture.
- 2015Direct Benefit Transfer (DBT) implemented for LPG and fertilizer subsidies.
- 2026Ongoing debates about optimal fertilizer subsidy levels and environmental impact.
Understanding Subsidies
Mind map illustrating the different aspects of subsidies, including types, objectives, stakeholders, and impacts.
Subsidies
- ●Types of Subsidies
- ●Objectives
- ●Stakeholders
- ●Impacts
Recent Developments
4 developmentsIncreased focus on green subsidies for renewable energy and electric vehicles as part of climate change mitigation strategies.
Subsidies are frequently at the core of trade disputes, as evidenced by the EU's investigation into Chinese electric vehicle subsidies.
Global debate on the effectiveness, fiscal implications, and trade-distorting effects of various subsidy programs.
India's implementation of Production Linked Incentive (PLI) schemes, which are a form of subsidy to boost domestic manufacturing.