- Regressive Nature: Richer households often benefit more due to higher consumption.
- Market Distortion: Prices lose their role in allocating scarce resources efficiently.
- Example: MSP for wheat/rice leads to under-cultivation of other crops.
- Leakages: Prone to diversion and waste of government resources.
- Example: Diversion of subsidized urea to neighboring countries or chemical companies.
- Inefficiency: No motivation for manufacturers to reduce costs or become efficient.
- Fiscal Burden: Can lead to significant government expenditure.