- Subsidies can be disbursed in three main ways:
Price Subsidies
- Government provides goods at below market price.
- Example: Subsidized fertilizers, LPG cylinders (before DBT).
- Often regressive, distort markets, and prone to leakages.
Direct Benefit Transfer (DBT)
- Government allows people to purchase/sell products from/in the market.
- Directly transfers the subsidy money into their Aadhaar-linked bank account.
- Example: LPG subsidy (households buy at market price, subsidy transferred).
- Increases effectiveness by reducing departments and distribution costs.
- Removes leakages and diversion.
Income Support
- Government transfers a certain amount to the public.
- Recipients are free to decide what to do with that money.
- Does not require purchasing/selling specific items.
- Does not distort the market.
- Example: PM-KISAN (income support to farmers).
- Can be extended to a class of population or entire population (UBI).