Subsidies and cash transaction

<–2/”>a >A subsidy is a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.

Direct Cash Transfer Scheme is a POVERTY reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies.

It can help the government reach out to identified beneficiaries and can plug leakages. Currently, ration shop owners divert subsidised PDS grains or kerosene to open market and make fast buck. Such Leakages could stop. The scheme will also enhance efficiency of welfare schemes.

The Money is directly transferred into bank accounts of beneficiaries. LPG and kerosene subsidies, pension payments, scholarships and EMPLOYMENT guarantee scheme payments as well as benefits under other government welfare programmes will be made directly to beneficiaries. The money can then be used to buy Services from the market. For eg. if subsidy on LPG or kerosene is abolished and the government still wants to give the subsidy to the poor, the subsidy portion will be transferred as cash into the banks of the intended beneficiaries.

It is feared that the money may not be used for the intended purpose and men may squander it.

Electronic Benefit Transfer (EBT) has already begun on a pilot basis in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Pondicherry and Sikkim. The government claims the results are encouraging.

Only Aadhar card holders will get cash transfer. As of today, not all people have Aadhar cards. Two other drawbacks are that most BPL families don’t have bank accounts and several villages don’t have any bank branches. These factors can limit the reach of cash transfer.

Different types of subsidies are:-

Green Box Subsidies: The subsidies which cause no, or at most minimal, trade distorting effects or effects on production. These subsidies are permitted under WTO regime, for instance; Government services such as research, disease control, and Infrastructure-2/”>INFRASTRUCTURE and Food Security.

Amber Box Subsidies : All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box. For instance, MSP, Procurement Price, sum total of subsidies on inputs like fertilizer, water, credit, power, etc.

Blue Box Subsidies: It contains direct payment subsidies which can be increased without limit, so long as payments are linked to production-limiting programs. This is the “amber box with conditions”, conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production.

Subsidies are a major component of expenditure they are a form of transfer payment given by government to the People. Subsidies can be classified as food, petroleum and agriculture subsidies.

Why rationalisation:

Government expenditure power is limited and they cannot go beyond a point further the Fiscal Deficit should be solely utilised for the purpose to finance capital assets creation. Secondly in Revenue Expenditure most of them is committed one. Hence scope of reduction lies with the revenue subsidies only. Third, most of the reports have suggested low efficiency and mis targeted subsidies. Hence rationalisation if the need of the hour.

Measures taken to rationalise subsidies:

Use of direct benefit transfer to plug the leakage. Like PAHAL scheme.
Use of technology to disburse subsidies like : Point on sale machine, Aadhar machine enabled payment
Removal of subsidies on petroleum and diesel.
Moral suasion by Prime Minister to give up subsidies.
Creation of objective Database to remove duplicacy in disbursal.

ssues of Direct and Indirect Subsidy for farm sector and other social sectors.

Subsidy is one of the powerful fiscal instruments, besides taxes and others, by which the objective of Growth and social Justice may be achieved.

Subsidies alter relative prices and budget constraints and thereby affect decisions concerning production, consumption and allocation of Resources. Like many other countries, subsidies in Indian economy are pervasive. These are explicit or hidden and include the areas such as Education, Health, Environment and variety of economic activities including agriculture and transport. Nearly 66 per cent of the people in India are still dependent on agriculture. The subsidies to agricultural sector provided by the government have recorded phenomenal rise during the past two decades.

The agricultural subsidies act as an incentive to promote agricultural development. In order to attain the goal of self-sufficiency in food, government adopts short term policies such as support prices of products and input subsidy to stimulate the products to increase the food production. It is expected that subsidies contribute to better Cropping pattern, employment and income of the beneficiaries. But in most development programmes, subsidies are one among the many developmental inputs being provided. Thus the observable changes in cropping pattern, employment level and overall incomes are because of the joint effect of all the efforts going on. Therefore, these changes cannot be attributed solely to subsidies.

The subsidies may be direct or indirect, cash or kind, general or particular, budgetary or non budgetary, etc. But their impact is practically visible on both the production and distribution. The economic rationale of subsidies lies in incentivising the producers to invest in productive activities and increase production leading to high growth in NATIONAL INCOME and obtaining desirable structure of production.

Subsidies in Indian Agriculture are of four types :

Explicit Input Subsidies

Explicit input subsidies are payments made to the farmers to meet a part of the cost of an input. These are in the nature of explicit payments made to the farmer. For example, subsidy on improved or high yielding variety seeds, plant protection chemicals and equipments, improved agricultural implements and supply of minikits containing seeds, Fertilizers and plant protection chemicals for certain crops are the explicit subsidies.

Implicit Input Subsidies

While there is transparency in explicit input subsidies, implicit input subsidies are hidden in nature. The latter arise on account of the mechanics of pricing of inputs. If inputs whose prices are administratively determined are priced low as compared to their economic cost, it becomes a case of implicit subsidization. As far as the farmer is concerned, he does not receive any direct payment but somebody in the economy accounts for the difference.

Output Subsidies Subsidization of agricultural sector through output pricing means that by a restrictive Trade Policy, the product prices in the domestic market are maintained at levels higher than those that would have prevailed in the absence of restrictions on trade. On the other hand, if the trade policies have resulted in keeping the domestic prices lower than the corresponding border reference price, the policies have taxed the agricultural sector. The border reference price is the free on board prices in the case of exportables and cost, insurance and freight price in the case of importables.

Food Subsidies This apart, there is an important subsidy linked to the agricultural sector and that is the food subsidy. The twin policy of providing market support to the foodgrains producers and supplying atleast a part of the requirement to consumers at reasonable prices, along with the policy of maintaining a buffer- stock of required quantity for national food security, involved cost in the form of meeting the differences between the economic cost and issue prices of foodgrains.

There are several types of Federal Farm Subsidies:

Direct payments. ‘‘Direct’’ payments are cash subsidies for producers of selected crops like wheat, corn, sorghum, barley, oats, Cotton, rice, soybeans, minor oilseeds, and peanuts. Direct payments are based on a historical measure of a farm’s acreage used for production, but some payments go to owners of land that is no longer even used for farming.

Marketing loans. The marketing loan program is a price support program that began in the New Deal era. The program encourages overproduction by setting a price floor for crops and by reducing the price variability that would otherwise face producers in the free market. The marketing loan program covers the same crops as the direct subsidy program.
Insurance. When viewed internationally, the Risk Management Agency runs the USDA’s farm insurance programs, which are available to farmers to protect against adverse weather, pests, and low market prices.

Disaster aid. In federal system, the government operates various crop insurance and disaster assistance programs for farmers. In addition, Congress frequently declare ‘‘disasters’’ whenever the slightest adverse event occurs, and often distributes special payments to farmers regardless of whether they sustained substantial damage.

Export subsidies. The USDA operates a range of programs to aid farmers and food companies with their foreign sales.

Agricultural research and statistics. Most American industries fund their own research and development programs.

AGRICULTURAL SUBSIDIES IN MADHYA PRADESH – AN OVERVIEW (Issues and Solution)

The agricultural sector in Madhya Pradesh enjoys both input and output subsidies. This chapter provides an overview of agricultural input subsidies in the state, based on secondary data. It is presented in four sections. The first section gives the kinds of subsidies admissible in the year 2000-2001 under different agricultural programmes of State Agricultural Department. The second section gives an account of direct subsidies made available by the Departments of Agriculture, Horticulture-2/”>Horticulture, Animal Husbandry and Fisheries-2/”>Fisheries. The third section gives details of estimation of the indirect subsidies viz. fertilisers, power and Irrigation and in the fourth section the total agricultural subsidies both direct and indirect are analysed.

Subsidies do not reach the marginalized farmers

The marginalized farmers, the main target audience for the government to come up with subsidies in the first place are found wanting of the same. Effectively, the more well off farmers end up taking more than their fair share.

The fiscal burden on the government

The government fails to recover its costs because of Taxation issues and is thus led to borrow from other sources. Ineffective taxation policies end up taking their toll on the government’s developmental plans.

The APMC Act

The APMC Act was set up by the government, as a means to improve the efficacy of the process of the farmers getting their rightful price due to them, through the establishment of middlemen acting as links to the chain. Sadly though, their main prerogative was rendered ineffective, due to their own middlemen.

The APMC act established mandis, where farmers auction their produce. The presence of middlemen, effectively multiplied prices at each level which thus led to higher prices and lower profits for the farmers.

Dealing with Harmful Subsidies

Excess subsidisation is not just an unwarranted fiscal cost. It can do significant damage. For example, oversubsidisation of fertilisers, leads to excessive use of fertilisers, pesticides and other agricultural inputs that have environmentally detrimental effects leading to erosion, compaction, and denitrification of top Soil. Similarly, excess subsidisation of water causes drying up of rivers, declining water tables and soil erosion. Excess subsidisation of diesel compounds environmental pollution.

Solution Strategy

A proposed solution strategy to be effective would need to work on three basic levels.

Customer Base Identification and Selective Targeting

Effective channelization of subsidies

Logistics Support.

Customer Base Identification

Segmenting farmers into three broad categories based on their economic status, to ensure that the subsidies reach the ones most in need. A proposed model that takes in certain parameters, assigning them different weights through Principal Component Analysis (PCA) and comparing it through a seismic inspired model.

Logistics From a logistical standpoint the system needs to develop into a more transparent setup. This can be ensured by integrating the UID (Aadhar) system into the fold. This integration would ensure that leaks are prevented and a more transparent and effective system of monetary transfer is established. Cashless and quick transfer of funds could thus become possible, helping weed out the need for middlemen in the system as a whole.

This proposed model may not be fully effective and has its fallacies, this may not be the best way of coming out with this issue. But, the issue of ineffective agricultural subsidization is one of national importance. This is but a endeavor to think about the same and to come up with something that could help enliven the lives of our farmers.

Current strategy of Government for social sector subsidies

In its three-year action plan for the economy the government think-tank mooted a reduction in food subsidies as a proportion of GDP by 2019-20 through better targeting and rationalisation measures.

Within revenue expenditures, subsidies have tended to crowd out the socially more productive expenditures such as those on education and health.

While in absolute terms, the allocation towards food subsidy, as per the Aayog, will increase marginally to ₹1.57 lakh crore from ₹1.24 lakh crore, as a proportion to GDP, the expenditure will come down to 0.73% from 0.90% in 2015-16.

The government’s allocations are based on reduction in food subsidy as a proportion to GDP from 0.90% in 2015-16 to 0.73% in 2019-20.

The efficiency of social expenditure must be improved to deliver better outcomes. This may be done for example through better targeting and the use of direct benefit transfers. Open ended schemes that can absorb rising expenditures and lack clearly identified beneficiaries must be avoided.

A subsidy is a form of financial assistance that the government provides to an individual, business, or other entity. Subsidies can be used to encourage certain activities, such as research and development, or to protect certain industries from foreign competition. They can also be used to provide assistance to low-income individuals or families.

There are many different types of subsidies, but they can generally be divided into two categories: direct subsidies and indirect subsidies. Direct subsidies are payments that the government makes directly to the recipient, such as cash payments or tax breaks. Indirect subsidies are benefits that the government provides to the recipient, such as lower prices or access to government-owned resources.

Subsidies can be controversial, as they can distort the market and lead to inefficiencies. However, they can also be a useful tool for achieving government policy goals.

Cash subsidy is a type of subsidy in which the government provides money directly to the recipient. This type of subsidy is often used to provide assistance to low-income individuals or families. Cash subsidies can be used to help people pay for food, housing, transportation, and other necessities.

Direct cash transfer (DCT) is a type of cash subsidy that is directly deposited into the recipient’s bank account. DCTs are often used to provide assistance to low-income individuals or families. DCTs have several advantages over other types of cash subsidies, including:

They are more efficient, as they do not require the government to set up and administer a complex system of payments.
They are more transparent, as the government can track the use of the funds.
They are more likely to be used for essential goods and services, as the recipient has control over how the funds are spent.

Food subsidy is a type of subsidy that is used to reduce the price of food. Food subsidies can be provided in a variety of ways, such as through direct payments to farmers, through price controls, or through food stamps. Food subsidies are often used to protect low-income individuals and families from the high cost of food.

Fuel subsidy is a type of subsidy that is used to reduce the price of fuel. Fuel subsidies can be provided in a variety of ways, such as through direct payments to oil companies, through tax breaks, or through price controls. Fuel subsidies are often used to protect low-income individuals and families from the high cost of fuel.

Fertilizer Subsidy is a type of subsidy that is used to reduce the cost of fertilizer. Fertilizer subsidies can be provided in a variety of ways, such as through direct payments to farmers, through tax breaks, or through price controls. Fertilizer subsidies are often used to protect farmers from the high cost of fertilizer.

Interest subsidy is a type of subsidy that is used to reduce the cost of borrowing money. Interest subsidies can be provided in a variety of ways, such as through direct payments to borrowers, through tax breaks, or through lower interest rates. Interest subsidies are often used to encourage Investment or to help low-income individuals and families afford to buy a home.

Irrigation subsidy is a type of subsidy that is used to reduce the cost of irrigation. Irrigation subsidies can be provided in a variety of ways, such as through direct payments to farmers, through tax breaks, or through lower water rates. Irrigation subsidies are often used to help farmers grow crops in areas where water is scarce.

Power subsidy is a type of subsidy that is used to reduce the cost of electricity. Power subsidies can be provided in a variety of ways, such as through direct payments to consumers, through tax breaks, or through lower electricity rates. Power subsidies are often used to protect low-income individuals and families from the high cost of electricity.

Seed subsidy is a type of subsidy that is used to reduce the cost of seeds. Seed subsidies can be provided in a variety of ways, such as through direct payments to farmers, through tax breaks, or through lower seed prices. Seed subsidies are often used to help farmers grow crops.

Subsidy reform is the process of changing the way that subsidies are provided. Subsidy reform can be used to make subsidies more efficient, more transparent, and more targeted. Subsidy reform can also be used to reduce the overall cost of subsidies.

Subsidy transparency is the process of making information about subsidies available to the public. Subsidy transparency can help to ensure that subsidies are used effectively and that they are not benefiting special interests.

Targeted subsidy is a type of subsidy that is provided to a specific group of people or businesses. Targeted subsidies are often used to achieve specific policy goals, such as reducing poverty or promoting Economic Development.

Universal subsidy is a type of subsidy that is provided to everyone in a particular group, regardless of their income or circumstances. Universal subsidies are often used to provide basic necessities, such as education or healthcare.

Here are some frequently asked questions and short answers about subsidies and cash transactions:

What is a subsidy?
A subsidy is a financial assistance provided by the government to an individual, business, or other organization. Subsidies can be used to encourage certain activities, such as research and development, or to offset the costs of certain goods or services, such as energy or housing.
What are the different types of subsidies?
There are many different types of subsidies, but they can generally be divided into two categories: direct subsidies and indirect subsidies. Direct subsidies are payments made directly to the recipient, while indirect subsidies are benefits that are provided in kind, such as tax breaks or government-provided goods or services.
What are the benefits of subsidies?
Subsidies can be used to achieve a variety of policy goals, such as increasing economic growth, reducing poverty, or protecting the environment. Subsidies can also be used to correct market failures, such as when a market is not providing goods or services that are essential to the public good.
What are the drawbacks of subsidies?
Subsidies can be costly to the government, and they can also distort markets. Subsidies can also create a moral hazard, as recipients may be less likely to take risks or innovate if they are being subsidized.
What are the different types of cash transactions?
Cash transactions are any transactions that are conducted using cash. This includes transactions that are made in person, over the phone, or online. Cash transactions are often used to avoid taxes or to conceal illegal activity.
What are the benefits of cash transactions?
Cash transactions are convenient and private. They can also be used to avoid taxes or to conceal illegal activity.
What are the drawbacks of cash transactions?
Cash transactions are difficult to track and trace. They can also be used to facilitate illegal activity.
What are the different types of subsidies and cash transactions?
There are many different types of subsidies and cash transactions. Some common types of subsidies include:
Direct subsidies: These are payments made directly to the recipient. For example, the government may provide a direct subsidy to farmers to help them cover the costs of production.
Indirect subsidies: These are benefits that are provided in kind, such as tax breaks or government-provided goods or services. For example, the government may provide an indirect subsidy to homeowners by allowing them to deduct mortgage interest from their taxes.
Cash transactions: These are any transactions that are conducted using cash. This includes transactions that are made in person, over the phone, or online.
What are the benefits and drawbacks of subsidies and cash transactions?
Subsidies and cash transactions can both have benefits and drawbacks. Some of the benefits of subsidies include:
They can be used to achieve a variety of policy goals, such as increasing economic growth, reducing poverty, or protecting the environment.
They can be used to correct market failures, such as when a market is not providing goods or services that are essential to the public good.

Some of the drawbacks of subsidies include:

They can be costly to the government.
They can distort markets.
They can create a moral hazard.

Some of the benefits of cash transactions include:

They are convenient and private.
They can be used to avoid taxes or to conceal illegal activity.

Some of the drawbacks of cash transactions include:

They are difficult to track and trace.
They can be used to facilitate illegal activity.

Sure, here are some MCQs without mentioning the topic Subsidies and cash transaction:

Which of the following is not a type of government expenditure?
(A) Transfer Payments
(B) Consumption expenditures
(C) Investment expenditures
(D) Subsidies
Which of the following is a Direct Tax?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise tax
Which of the following is an Indirect Tax?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise tax
Which of the following is a progressive tax?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise tax
Which of the following is a regressive tax?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise tax
Which of the following is a proportional tax?
(A) Income tax
(B) Sales tax
(C) Property tax
(D) Excise tax
Which of the following is a Fiscal Policy tool?
(A) Monetary Policy
(B) Taxation
(C) Spending
(D) All of the above
Which of the following is a monetary policy tool?
(A) Open market operations
(B) DISCOUNT rate
(C) Reserve requirement
(D) All of the above
Which of the following is a tool of fiscal policy?
(A) Tax cuts
(B) Spending increases
(C) Both tax cuts and spending increases
(D) Neither tax cuts nor spending increases
Which of the following is a tool of monetary policy?
(A) Open market operations
(B) Discount rate
(C) Reserve requirement
(D) All of the above