| Definition |
A financial aid or support extended by the government to reduce the cost of goods or services. |
An economic system where prices are determined by unrestricted competition between privately owned businesses. |
| Role of Government |
Active involvement through financial intervention. |
Minimal to no government interference in pricing or production. |
| Price Determination |
Prices are influenced by government support or control. |
Prices are determined purely by supply and demand. |
| Objective |
To make essential goods/services affordable or promote specific sectors. |
To allow market forces to allocate resources efficiently. |
| Efficiency |
May reduce market efficiency due to distortion. |
Encourages efficiency through competition and innovation. |
| Resource Allocation |
May lead to misallocation or overuse of resources. |
Resources allocated based on consumer demand and profitability. |
| Market Signals |
Distorted due to artificial price control. |
Pure and clear signals based on market dynamics. |
| Examples |
Fertilizer subsidies, food subsidy, LPG subsidy. |
Stock markets, private e-commerce, ride-sharing platforms. |
| Consumer Benefit |
Lower prices and affordability of essential goods. |
Wide variety, better quality, and innovation-driven choices. |
| Producer Behavior |
Can lead to dependence and inefficiency among producers. |
Producers innovate and compete to attract consumers. |
| Innovation |
Often discouraged as producers rely on government aid. |
Highly encouraged due to competitive pressure. |
| Economic Distortion |
Can distort true cost and demand structure. |
Market reflects real supply-demand conditions. |
| Equity |
Aims to promote social equity and reduce inequality. |
May lead to inequality as outcomes depend on market forces. |
| Funding Source |
Funded by taxpayers through government budgets. |
No public funding; fully private-driven economy. |
| Market Failures |
Used to correct market failures or externalities. |
Vulnerable to market failures without intervention. |
| Targeting |
Can be targeted to specific sectors, groups, or regions. |
No targeting; governed by market demand and competition. |
| Transparency |
May lack transparency and lead to leakages or misuse. |
More transparent as prices reflect market information. |
| Risk of Corruption |
High due to administrative handling and political influence. |
Lower, as transactions are voluntary and decentralized. |
| Long-Term Sustainability |
May become fiscally unsustainable. |
Generally sustainable if market conditions remain stable. |
| Examples by Country |
India's MSP, EU's Common Agricultural Policy subsidies. |
USA’s capitalist sectors, Singapore’s open market policies. |
| Effect on Competition |
Can reduce competition if inefficient firms are protected. |
Drives competition and better resource utilization. |
| Consumer Choice |
Limited in some cases due to standardized subsidized offerings. |
Broad due to market diversity and innovation. |
| Environmental Impact |
Can promote overuse (e.g., water/electricity subsidies). |
May encourage efficiency but may ignore environmental costs unless regulated. |
Subsidy vs Free Market
