Why is it necessarily important for a country like India to embed huge subsidies in fuel and other goods, leaving the future generations …

Why-is-it-necessarily-important-for-a-country-like-India-to-embed-huge-subsidies-in-fuel-and-other-goods-leaving-the-future-generations-to-pay-higher-taxes – 1

Answer by Jai Parimi:

Subsidy like medicine should have right dosage.

There are two children in a class. One of them is smart at grasping what the teacher says and the other is a hard worker who takes more time to learn.

As an ethical class teacher with fixed amount of time, who among them do you think requires more of your attention?
I know you will give more attention to the hard working kid. πŸ˜›

In this process, you are allocating more resource(time) to one kid which rightfully belongs to the other kid. (because they paid equal fee for equal time). This process of reallocation of resources is called SUBSIDIZING.

What is subsidy?

  • A subsidy is a form of financial or in kind support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy.

In the above example, we discussed what an ethical class teacher would do. If you feel that is right, then subsidizing is good. But, there is a catch to it.

Let's say there is a result oriented corporate teacher in your school and your duties are transferred to that person. Who among them do you think gets more attention? So, we have to say there are right subsidies and wrong subsidies. πŸ™‚

Impact of a good subsidy:

Any good government strives for the welfare of all people and not few targeted group of individuals. So, a subsidy that is strategically targeted to bring the challenged people into the mainstream is always beneficial to the society because, it increases the productivity of the beneficiary.

Increased productivity means better quality of life. It results in the beneficiaries by

  • Increasing their income/profitability.
  • Lowering their running costs/operational costs.
  • Maximising the use of all resources.
  • Gaining a greater share in the market.
  • More cash flows mean more opportunity for the company to expand and grow.

These are few direct benefits. There are many indirect benefits like reduction of disparities which are immeasurable.

Symptoms of a bad subsidy:

(The difference between teaching a man to fish and feeding a man a fish)
A bad subsidy instead of increasing the productivity increases the demand for a product. For example, If government subsidizes fuel, people start using it and it costs the exchequer.

  • Increased demand without increasing productivity.
  • Increased taxes (since government can only redistribute wealth not create)
  • Decreased productivity of the target group.

Thanks for the A2A Mohan. As I stated in my opening line, Subsidy is like medicine make their best impact when executed in right dosage at right time for right patient by the right doctor. πŸ™‚

Why is it necessarily important for a country like India to embed huge subsidies in fuel and other goods, leaving the future generations …


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