Benefits Of Subsidies In Developing Economy

The cost of living in developing countries bites to the bone. The basic necessities of life are sometimes far reaching. In this economic situation young and old thrive, looking up to government for almost everything. The governments, found wanting in so many areas may want to upset some deficiencies by subsidizing the cost of a largely used product.

The truth is, there is always sacrifices to make in order to achieve a subsidy goal, other necessities could suffer, however, it is worth it.

There are many areas of developing economy that may need subsidy,  the government determines what is worth subsidizing from a long list of necessities.

Employment subsidy

This measure is used to upset employment deficit by giving incentives to businesses, to create  more jobs. Sometimes, the government may come up with a plan to pay unemployed people, or give unemployment benefits to those who are out of job. The implementation of  employment subsidy results in low crime and decreased prostitution rate.

Production subsidy

This type of subsidy takes effect when there is shortage of  a good or product consume largely by the public. The government may want to help the producing company to do more, by paying part of the production cost. Moreover, it could be applied in development of an industry with the capacity of augmenting the production strength of  goods and services.

Consumer subsidy

This type  of subsidy deals mainly with services that the government provide for the people. The cost of such services is reduced so that the people could afford it. The examples are-

Food and water: food shortage is a human problem that no government would want to entertain to a large extent. So, necessary measures are always taken to make sure that mostly consumed foods are available. It could mean removing import tariffs on a particular food product, or assisting local producers financially to produce more.

The same applies to water, when the cost is quite unbecoming,  needed steps are taken by the authorities to see that it is within the  reach of the people. No responsible government would want to entertain the health challenges emanating from poor water.

Drugs: This type of subsidy takes effect when a particular ailment begins to threaten the well being of a large number of people. Cure, or preventive measures may be taken to protect everyone. If the cost of the required medication is high, government may make a subsidy plan to accommodate  everyone. For example, malaria in Africa. Other health issues may also apply requiring international assistance, e.g hiv/aids and cancer.

Education: In many developing countries, the government encourages  basic education by subsidizing the cost, or making it entirely free. This enables poor family to enroll their kids in schools.

Electricity: this is a necessity that is not readily available in developing economies, and when it is, the cost is high. To enable the availability, the government may come up with a subsidy plan. It helps individual, and small scale businesses to grow.

Exportation subsidy

This type of subsidy becomes necessary when there is a need of exportation of locally made products. The local manufacturing companies may not have the facility that would enable finished products. That is when the government may extend the needed assistance to promote a local product overseas.

Tax subsidy

Developing economies sometimes use this means to encourage industrial interest. The objective is to create employment from performing industries, and to enable new companies to grow. Sometimes, it may be to sustain an already existing industry that is on the verge of liquidation. By being exempted from taxation, industries use the fund to keep themselves in business.

Transportation subsidy

The need to move from one place to the other is sometimes hindered by "lack of means," maybe, because the transportation system of a country  is not enough to serve the people adequately, resulting in 'hike of transport fare.' The government may come up with a subsidy plan; either to allow investors to come in, or to enable people to move around at a low cost.

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