By Dr. Gyan Pathak
The data show that subsidies and transfers by the central government increased after the coronavirus disease (COVID-19) pandemic, peaking in 2022-23 at about 2.7 per cent of gross domestic product (GDP), and then declining to 1.7 per cent of GDP by 2024-25. However, such expenditures have been on a steady rise at the aggregate state level for 21 states increasing from 2.1 per cent of gross state domestic product (GSDP) in 2017-18 to 3 per cent in 2024-25. This is likely to increase further in 2025-26 as indicated in the recently released state budgets.
A study of subsidies and transfers in India by Asian Development Bank (ADB) that has undertaken a comprehensive mapping of subsidies and transfers by the central and state government says that it collated the subsidies and transfer and expenditures using disaggregated data for the central government and selected 21 state governments covering 95 per cent of India’s GDP, because the existing data in the government finance accounts of both the central and state governments are often not comprehensive. It also pointed out that there is no universal definition of subsidies and transfer, and also no systemic dataset exists on expenditures on case transfer schemes by governments.
The study has adopted a definition of subsidy as “a benefit provided by the government to groups or individuals, often in the form of cash, in kind, or a reduction in tax levied.” As per available data, subsidies account for about 7 – 10 per cent of public expenditure in India.
As per the statement of subsidies and subsidy-related schemes, the central government subsidies as a share of GDP were 1.3 per cent in 2017-18, which declined to 1.2 per cent in 2018-19, but again came back to the level of 1.3 per cent in 2019-20. During COVID-19 crisis it rose to 2.1 per cent, and then again declined to 1.4 per cent in 2023-24.
Estimate of this study put the figures at higher level. If finds the subsidy in 2017-18 at the level of 1.6 per cent of the GDP, which declined to 1.4 per cent in 2018-19, and increased to 1.7 per cent in 2019-20. Due to the COVID-19 impact, it rose to 2.7 per cent in 2022-23 but declined to 1.9 per cent in 2023-24.
Aggregate state subsidies and transfers as a share of GSDP in 2017-18 was 1.2 per cent which remained at the same level until 2023-24, except in the year 2019-20 when it was declined to 1.1 per cent. Nevertheless, this study finds the subsidy rising from 2.1 per cent in 2017-18 to 2.3 per cent for the next two years, and then further rose to 2.7 per cent in 2022-23 and 2.8 per cent in 2023-24.
The difference between subsidy estimates as per this study and as reported in State Finance Account (SFA) and RBI documents is much smaller for Bihar, Gujarat, Maharashtra, Punjab, and Rajasthan, while it is sharply higher in Assam, Kerala, Odisha, Telangana, and Uttarakhand.
At the state level, this difference is largely on account of the classification of subsidy schemes into other heads of expenditure. Financial assistance, electricity, and pension and subsistence allowances constitute around 80 per cent of the total difference in subsidy estimate between SFA and this study.
This study considered benefits given under several schemes as subsidies. For 2023-24 it estimated subsidies of about 3 lakh crore under Pension and Subsistence Allowance (Rs 77,109 crore), Electricity (Rs66,471 crore), Financial Assistance (Rs57,182 crore), Loan Waiver (Rs25,315 crore), Price Support (Rs17,416 crore), Housing (Rs15,112 crore), Investment Promotion (Rs14,898 crore), Food (Rs14,577 crore) and Healthcare (Rs 14,340 crore).
Under the revised estimates of the state governments as percentage of GSDP of 21 states was rose from 2.1 per cent in 2017-18 to 2.3 per cent in the next two years, and then rose to 2.7 per cent in 2022-23. It further rose to 2.8 per cent in 2023-24, and 3 per cent in 2024-25 as per the revised estimate of the government.
Subsidies from the central government as per the revised estimates rose from 1.6 per cent in 2017-18 to 2.7 per cent in 2022-23, and then declined to 1.9 per cent in 2023-24 and 1.7 per cent in 2024-25.
Subsidy as share of GSDP of the states show big differences. Highest level of subsidy in 2024-25 was 7.9 per cent in Chhattisgarh, followed by 6 per cent in Jharkhand, 5.2 per cent in Telangana, 4.9 per cent in Odisha, 4.7 per cent in Madhya Pradesh, 4.3 per cent in Punjab, and 4.1 per cent in Andhra Pradesh.
Subsidies are relatively low in Kerala, Uttarakhand, Assam, Goa, Gujarat, and Himachal Pradesh (below 2 per cent of GSDP). However, the increasing trend of subsidies and transfers holds true for almost all the states, barring Rajasthan and Goa. Highest growth during 2017-18 to 2024-25 was in Jharkhand, Odisha, Madhya Pradesh, Punjab, Chhattisgarh, and Telangana.
In their 2025-26 budgets, many states have either continued or introduced new schemes in the form of financial assistance to women or other groups, free bus service to women, and/or free electricity up to a specified level of units or at subsidized rates. Further, budget allocations for many major schemes have increased. As a result, it is likely that total subsidies and transfers will continue to see an upward trend, especially in these states.
The study has found positive correlation between per capita subsidy and transfers by states and state-level per capital household expenditure.
In 2024-25, central government subsidies and transfers as a share of revenue receipts and expenditures were 18 per cent and 15 per cent, respectively. However, for states, this proportion was generally higher, especially for Telangana, Andhra Pradesh, Chhattisgarh, Karnataka, and Punjab, which used over 30 per cent of their revenues for subsidies and transfers. (IPA Service)
