Subsidy refers to a transfer of resources by the government to the buyer or seller of a good or service that has the effect of reducing the price paid by the buyers, increasing the price received by the sellers, or reducing the cost of production of the good or service. Thus, only those government expenditures are considered as subsidy that reduce the market price of a good or service through any of the ways mentioned above; government spending for public provisioning of education, healthcare, and rural infrastructure etc. are not considered subsidies. The government in India has been subsidizing crucial items like food, fuel etc. since Independence. These subsidies have been very important in the Indian context where a significant share of the population (both in rural as well as urban areas) is not always capable of affording even the necessary goods and services at the market prices. However, in recent times, in the wake of the relatively high levels of Fiscal Deficit incurred by the Union Government, many in the policy community in the country have been asking whether subsidies are putting too much pressure on the budget of the Union Government and whether the money being provided for subsidies is getting utilized well.

Policy Debates on Subsidies