MICROECONOMICS

Group-3
Anish S A -18066
Mallepogu Tarun Kumar -18076
Vishnu Menon R -18086
Bille Sai Dinesh -18096
Pratik B Bathia -18106
Nisarga Ganesh -18116
Case Given:
Subsidies in India: Is a case for
failure of government
intervention?
 OBJECTIVES
The Major specific objectives are:
1.     To study the types of subsidies provided by the
government in India.
2.     To examine, compare and deciding whether the
subsidies are boon or curse for economic development.
 INTRODUCTION
 History
 Subsidy?
• Subsidies are a kind of incentive which play an important
role in economic development of developing countries.
• Subsidies bring out desired changes by effecting optimal
allocation of resources, stabilizing the price of essential good
& services, redistributing income in favor of poor people thus
achieving the twin objective of growth & equity of nation.
 Types of subsidies
Direct Subsidy-Direct subsidies are given in terms of cash
grants, interest-free loans and direct benefits.

Indirect Subsidy-Indirect subsidies are provided in terms

of tax breaks, insurance, low-interest loans, depreciation
write-offs, rent rebates.
 Classification

FERTILIZER
S

Subsid FUEL
FOOD ies

PRODUCE
R
 FERTILIZER SUBSIDY
Fertilizer subsidy is the difference between the
delivered cost of fertilizers at farm gate and
MRP payable by the farmer is given as subsidy
to the fertilizer manufacturer/importer by the
Government of India.
Objectives:
Availability of fertilizers to farmer at
affordable price.
 To encourage domestic production by
allowing fertilizer producer a reasonable
return
 ADVANTAGES AND
DISADVANTAGES
ADVANTAGES
• To increase the profitability of the farming
• More benefits to small and marginal farmers

DISADVANTAGES
• Over use of fertilizer
• Long term use cause change in soil pH
 FOOD SUBSIDY
• Food Subsidy is a financial aid supplied by a government, to
industries, farmers, and consumers, in order to make low
cost food available to poor people.
Objectives:
The main aims of this subsidy is to:
• Ensure profitable prices to the farmers in order to increase food grains
production.
• Improve access to food for below poverty line people.
• To stabilise food grains prices and availability in the country.
 MSP AND BUFFER STOCK
 Minimum Support Price is the price
at which government purchases crops
from the farmers, to safeguard the
interests of the farmers.
 A buffer stock is a system or scheme
which buys and stores stocks at times
of good harvests to prevent prices
falling below a target range (or price
level), and releases stocks during bad
harvests to prevent prices rising
above a target range (or price level).
 ORGANISATIONS
The following are the organizations or establishments that
take part in the process of providing subsidies to the people.
• Public Distribution System (PDS)
• Fair Price Shop (FPS)
• Food Corporation Of India (FCI)
• Commission for Agricultural Costs & Prices (CACP)
 HOW FOOD SUBSIDY AFFECTS
ECONOMY?
Inflation
Fiscal Deficit
 ADVANTAGES AND
DISADVANTAGES
• Poverty alleviation • Export bans
• Tackling malnutrition • Inferior quality food grains
• Food security • Deceitful dealers
• Financial security • Illicit fair price shop
owners & Malpractice
 REFORMS
• Vigilance squad should be strengthened to detect corruption, which is an
added expenditure for taxpayers.
• F.C.I. and other prominent agencies should provide quality food grains for
distribution, which is a tall order for an agency that has no real incentive to do
so.
• Frequent checks & raids should be conducted to eliminate bogus and
duplicate cards.
• The fair price dealers seldom display rate chart and quantity available in the
block-boards in front of the shop. This should be enforced.
• Direct Benefit Transfer or DBT has been introduced.
 Production subsidies

• It is a payment given by the government to suppliers that

reduce their costs of production which increase their
profit margin and encourages them to increase the output.
• Different Producer Subsidies:
• Credit Linked Capital Subsidy Scheme [CLCSS]
• Subsidy for Establishing Cold Chain
• Capital Subsidy for Solar Lighting and Small Capacity PV
Systems
Showing a producer subsidy in a
supply and demand diagram

D S1

S
2
 CONCLUSION
• The government has done many good projects and launched many
potential schemes to offer help on us, as consumers, and farmers,
as agricultural workers and as producers.
• It did provide stability for the prices of fuel, fertilizer, food and
reduce poverty to a certain extent though not completely effective.
• It is not the system which is at fault but the implementation of the
subsidy. Hence Subsidy should be given as it is good for the people
especially for a developing country like India where there is a
large population living under Below Poverty Line.
THANK YOU