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SUBS - Coggle Diagram
SUBS
- Classification of Subsidies
- Benefits provided to consumers (e.g., LPG subsidy)
- Benefits provided to producers (e.g., MSP to farmers)
- Direct cash payments (e.g., LPG subsidy)
- Providing goods and services below market price or government procurement in excess of market price (e.g., fertilizer subsidy)
- Specified in the budget document or through budgetary resources (e.g., PDS)
- Subsidies provided through subsidized public services and not included in the budget (e.g., railway subsidies)
- Subsidies given for social services (e.g., health)
- Subsidies given for economic services (e.g., power)
- Evolution and Purpose of Public Distribution System (PDS)
- Origin during World War II due to food shortage
- Focus on urban areas in the 1960s
- Extension to tribal blocks and high poverty areas in the 1970s-1980s
- Management of scarcity and affordable distribution of food grains
- Incremental nature, not intended to fulfill entire household requirements
- Distribution of commodities: wheat, rice, sugar, kerosene, and other items in some states
- Different ways of disbursing/implementing subsidies
- Subsidies can be given through price subsidies, Direct Benefit Transfer (DBT), and income support.
- Price subsidies have helped fight inflation and price volatility but have not transformed the living standards of the poor.
- Issues associated with price subsidies include regressiveness, market distortion, and leakages.
- Direct Benefit Transfer (DBT)
- Cash transfers increase the effectiveness of anti-poverty programs and reduce distribution costs.
- DBT removes possibilities of leakages and diversions.
- Cash transfers free up prices and promote efficient resource allocation.
- Income support provides cash transfers without requiring specific purchases.
- Income support does not distort the market.
- Universal Basic Income (UBI) is a form of income support that guarantees a minimum income for all individuals.
- UBI has periodic cash payments, is unconditional, and paid on an individual basis.
- Misconceptions and arguments against UBI include reduced work incentives, moral hazard, and promotion of vice.
- Subsidies are costs incurred by the government for the provision of goods that are not classified as public goods.
- Public goods have the characteristics of being non-rival and non-excludable.
- Examples of public goods include police services and border security services.
- Petrol and diesel prices are deregulated, and there is no subsidy on them.
- LPG subsidies are provided through DBT up to a certain number of cylinders.
- Kerosene subsidies have been eliminated due to the increased coverage of electricity and LPG.
- Kerosene is distributed through PDS at market prices with zero central subsidy.
- Urea subsidies are provided through pooling of gas and categorized energy norms.
- Benefits include increased indigenous urea production and energy efficiency.
- Challenges include lack of new capacity and inefficiencies in procurement and distribution.
- Introduction of neem-coated urea has multiple benefits.
- DAP and MOP Subsidy (Nutrient Based Subsidy)
- DAP and MOP subsidies are fixed based on nutrient content and do not vary with market prices.
- DAP and MOP market prices are deregulated.
- DBT in fertilizers involves retailers and biometric authentication.
- Food Corporation of India (FCI)
- FCI procures, stores, transports, and maintains buffer stocks of food grains.
- FCI has played a significant role in India's food security and price stabilization.
- Issues include surplus stock, storage costs, and inefficiencies in procurement and distribution.
- MSP is the rate at which purchases are made from farmers, and FCI is involved in open market sales and exports.
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- Revamped PDS and Targeted Public Distribution System (TPDS)