hello everyone and welcome to study iq english i'm joyce joy in this video we'll be discussing about types of subsidies different types of subsidies so first we will see what is a subsidy then we will come to different types of subsidies subsidy means a grand now what is the meaning of a grand a grand means that a money which has been given which need not be returned that is there is no repayment obligation in case of a grant so there is no repayment obligation or it has not be has not to be returned this grant may be in the form of either cash or kind and is generally given to promote an economic policy or a social policy it can be in the form of cash if it is in the form of cash it is called as cash subsidy or it can be in the form of kind that is in kind subsidy in the form of material so cash or kind and it is generally given to promote an economic policy or a social policy so either to promote an economic policy economic policy of a government or a social policy of the government now subsidies can be either direct subsidies or indirect subsidies direct subsidies are which are given directly to the beneficiaries and indirect subsidies reach the beneficiaries indirectly so direct subsidies reach the beneficiaries directly that is direct subsidy an indirect subsidy reach indirectly through a third person through a third person or another entity example of direct subsidies cash uh grants interest free loans all these are examples of direct subsidy and examples of indirect subsidies tax breaks premium free insurance low interest loans depreciation write-offs rent rebates all these are examples of indirect subsidy so tax breaks premium free insurance low interest loans depreciation rate of rent rebate all these are examples of indirect subsidy next we are coming to six primary categories of subsidies different types of subsidies first one is export subsidies that is subsidies given on exports second one is subsidies conditioned upon the use of domestic over imported goods that is in order to promote the use of domestic goods over imported goods what is the problem with regard to imported goods they are cheaper as compared to domestic goods they are cheaper now when the prices are low cheaper means the prices are low when the prices are low the demand will be high high for the imported goods this can affect the demand of the domestic goods demand of domestic goods can be affected so subsidies given in order to promote domestic goods third is industrial promotion subsidies to promote certain industries fourth is structural adjustment subsidies that is if there are structural deficiencies in an economy to adjust for these deficiencies or to compensate for the deficiencies compensate for structural deficiencies next is regional development subsidies that is for the development of a particular region research and development subsidies r d for promoting research and development by beneficiary there are two primary categories that is by beneficiary or from the perspective of beneficiary there are two primary categories one is subsidies that are not limited to specific business or industries that is subsidies that are not limited or which are not specific second is subsidies those are limited to specific businesses and industries that is specific subsidies and non-specific subsidies specific subsidies and non-specific subsidies subsidies can also be divided into broad and narrow subsidy that is broad which covers a broader group and narrow subsidies the most common forms of subsidies are those to the producer or to the consumer so two stakeholders who are generally or normally the beneficiaries of subsidies it can be either the producer or the consumer the producer or production subsidies ensure producers are better off by supplying market price support direct support or payments to the factors of production why production subsidies are given in order to promote the production of something and why is consumption subsidies given in order to promote the consumption of certain goods so production subsidies or product producer subsidies products subsidies these are given in order to promote the production of certain goods now consumer or consumption subsidies usually reduce the price of goods and services to the consumer so this makes the price cheaper price cheaper and therefore what will happen when the prices are cheaper this will attract more consumers there will be increase in demand subsidies are commonly used by governments to promote general welfare to promote welfare like housing education subsistence etc however they can also be used as tools of political and corporate crayonism or to erect barriers to trade so they can also be used as political tools or corporate tools but generally they are used to promote welfare subsidies are a tool of promoting welfare of the government now next is estimation of subsidy on public goods merit goods and non-merit classification we'll see what are public goods what are merit goods and what are non-merit goods public good is a good that individuals cannot be effectively excluded from the use and whereby where used by one individual does not reduce the availability to others so this is the definition of public goods and there are two features that distinguishes a public good from other goods one is that nobody can be excluded from consuming such goods that is it should be available for everyone second one is that if one person consumes a public good it will not reduce the availability for another person that is the two things examples of public goods include fresh air national defense flood control system public transport street lighting etc see these two characters rightly match for these examples now if you take national defense as an example nobody can be excluded from the services of national defense and also if a person is availing those services it doesn't mean that it is less available for another person so these are the two characters since these services are available to all they are normally characterized by non-rivalry and non-exclusive excludability in consumption so these are the two characters one is that they are non-rival they do not create a competition competition second one is non-exclusibility that means it is available for everyone since these services are available to all citizens they do not exclude anyone because it's universally available to everyone that's why they do not exclude anyone thus such goods cannot be priced and hence are not included in the calculation of subsidies that's why public goods does not count as subsidies why because it's not available to a specific group or they cannot be priced there is no price for all these public goods so that's why they cannot be considered as a subsidy next is merit goods those goods whose consumption leads to positive externalities that is merit goods by definition means that if anybody consumes a murid good it leads to positive externalities positive outcome this implies that when a merit good is consumed the public benefit is greater than the private benefit that is the benefit at large public benefit is the benefit in general or at large for example vaccination vaccination is a merit good it benefits the public in large similarly other goods are environmental protection minimal level of education for all etc the social benefit resulting from these goods or services much greater than the sum of private benefits to individual consul consumers this is because these goods contain certain elements of externality beneficial to the society as a whole this is because it creates a positive externality other examples of married goods are roads and ridges flood control research pertaining to agriculture space atomic energy etc the availability of benefits in the form of externality justifies the subsidies on these goods so availability of benefits in the form of externality these benefits in the form of externality justifies the subsidies on these goods next is non-merit goods non-merit goods are those goods whose consumption leads to negative externality now see in case of married goods we have seen that it leads to positive externality in case of non-merit goods it leads to negative externality in consumption of such goods the benefit of subsidies provided on such goods accrues to individual consumers in case of non-merit goods the cost of providing the com commodity or service to the society is higher than the price fixed for providing it to the consumer it leads to negative externalities now see how can you define a negative externality it creates a negative overall outcome now in case of a non-married good cost of providing the service or that commodity that non-merit good to the society is higher than the price fixed now see for example um you buy something which is degradable or sorry which is uh which can cause a destruction to the environment suppose the price of that commodity is 30 000 rupees but in terms of it sorry ecological degradation or environmental degradation the price is much more than the price this 30 000 rupees that is a non-merit good now these subsidies result in transfer of benefits to individual consumer in a number of ways so these are the different types cash subsidies that is in the form of cash interest subsidies or credit subsidies that is lesser rates of interest or subsidized rates of interest concessional rates of interest then tax subsidies which means that tax exemptions or lesser rates of tax etcetera in kind subsidies that is in the form of material then next is procurement subsidy purchase of food grains at an assured price like for example msp procurement price all these are examples of procurement subsidy next is regulatory subsidies fixation of prices of goods produced by the public sector at less than the cost with the view to providing inputs to industry or helping certain other categories of consumers now next coming to budgetary subsidies subsidies which are provided in the budget are budgetary subsidies so subsidies which are provided in the budget budget is the annual financial statement of the government it is also the a record of or the account of the expenditure and the revenue of the government it is the annual financial statement the estimation of budgetary subsidies are computed as excess of the cost of providing a service over the recoveries from the service these costs are taken from as the sum of the following revenue expenditure on the concerned service annual depreciation on cumulative capital expenditure for the creation of physical assets in the service interest cost of cumulative capital expenditure equity investment in public enterprises and loans given for the service concerned including those to public enterprises so these are the budgetary subsidies so that's it about different kinds of subsidies i'll meet you again with another topic thank you so much for watching i wish you all the very best