Industry Subsidy

Industry Subsidy is the means through which a government provides assistance to its domestic industries. The motive behind forwarding of such such assistance from the underlying theory of “infant industry argument”. According to this argument, certain industries on the domestic front require Industry Subsidy for reaching a level playing field with its competitors in the international arena. But this subsidy will not be provided to them for all time and is expected to be seized when the target industry reaches the benchmark level where it could sustain itself.

Industry Subsidy is the means through which a government provides assistance to its domestic industries. The motive behind forwarding of such such assistance from the underlying theory of “infant industry argument”. According to this argument, certain industries on the domestic front require Industry Subsidy for reaching a level playing field with its competitors in the international arena. But this subsidy will not be provided to them for all time and is expected to be seized when the target industry reaches the benchmark level where it could sustain itself.

Industry Subsidy is given by the government to those industries which are supposed to be at risk of extinction if they are subjected to the international competition. Subsidies are provided in order to keep he cost of production at a restricted level so that the producers of the same are able to supply the finished products at low prices. Provision of such Industry Subsidy is categorically meant for increasing the level of production and consequently lowering the price of the same. Hence, in economic terms, we can say that subsidies are provided for shifting the supply curve in the downward direction so that one one hand the level of production increases and on the other price of the commodity decreases.

Industry Subsidy is generally considered by the proponents of laissez faire economy as a tool which hampers free market movement and consequently the equilibrium reached is distorted. But it has been found out many a times that subsidy is utilized by the government for correcting the market failure.

Industry Subsidy can be categorized under two broad heads, namely, Direct Subsidies and Indirect Subsidies. Subsidies can be forwarded to the target audience in the form of financial assistance directly. But in case of the indirect subsidy, the Industry Subsidy is provided through an indirect path and the target audience gets the benefit through the decreased price of the input. The most common form of subsidy is forwarded in this way.

Another prevalent form of Industry Subsidy is through the production subsidy where the producer of certain commodities are awarded with the financial assistance linked with the per unit production. For example, in India, certain sops are offered to the construction developers involved in the process of developmental projects mainly, infrastructural. These sops may come in the form of financial subsidy either in case of inputs or else.