Prime Minister on Subsidy and Incentives

January 30, 2016
Subsidy and incentive
The Prime Minister’s observations on subsidy at the ET Global Business Meet on January 29, 2016 (Report in The Economic Times, January 30) should be taken seriously by economists and policy makers. PM said, “if a benefit is given to farmers or the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually called an ‘incentive’ or ‘subvention’. We must ask ourselves whether this difference in language also reflects difference in our attitude?...”
PM has focussed on a real attitudinal issue prevailing world over, since the developed countries started dominating policy formulation for the rest of the world. US considered purchase and destruction of agricultural produce by government as ‘subvention’ to hold prices, while subsidising interest rates or cost of inputs to make farming a viable economic activity in poor or developing countries was discouraged by the same country through international organisations like IMF, by imposing conditionality.
This is not to argue the case for subsidies the way in which they are administered in India now. There is need for rationalisation, recognising subsidy as a temporary measure to make an activity economically viable, till market conditions make the activity viable. Ideally, the resources for subsidy should come from the same activity, by pooling surpluses when surpluses are generated by better prices.


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