Subsidy Showdown: How the U.S. and India Deliver Government Support Differently

A comparative look at the policy design, delivery mechanisms, and transparency of subsidies in the United States and India

Policy Architecture: Indirect vs Direct Support

United States
The U.S. primarily provides indirect support through the tax code—known as “tax expenditures”—and loan guarantees. Key programs like IRS-administered credits, federal entitlements, and loan guarantees under the DOE and SBA define this model. While direct spending exists (e.g., SNAP, Medicaid), the emphasis remains on market-based incentives and credit de-risking.

India
India, in contrast, relies heavily on direct subsidies and cash transfers. These include price subsidies (e.g., for food and fertilizer) and schemes like the Production-Linked Incentive (PLI). Funds are often disbursed through Direct Benefit Transfer (DBT) into Aadhaar-linked bank accounts, creating a visible and traceable support structure.

Main Delivery Mechanisms

United States
Support is funneled through institutional pipes like the IRS (for tax credits), and federal loan and entitlement programs, including SBA 7(a) loans and DOE loan guarantees.

India
India uses the JAM trinity—Jan Dhan bank accounts, Aadhaar, and mobile numbers—to implement DBT, ensuring direct transfers with lower leakage. Funds from central schemes are typically routed via state governments, enabling regional tailoring of national programs.

Spending Focus: Where the Money Goes

United States
A major chunk of U.S. government support goes toward nutrition, housing, healthcare, and retirement via tax breaks. For instance, the Farm Bill allocates most of its spending to the Supplemental Nutrition Assistance Program (SNAP).

India
India focuses on essential subsidies—notably food, fertilizer, LPG, and rural employment. Large initiatives like MGNREGA and PLI cater to immediate needs and long-term industrial growth.

Common Forms of Support

United States
Forms include non-refundable/refundable tax credits, accelerated depreciation, loan guarantees, and grants. These tools reduce upfront business risk and encourage private sector participation.

India
Support typically takes the form of price subsidies (e.g., free food grain under PMGKAY) and cash transfers. India also offers targeted production incentives through PLI schemes across 14 sectors.

Spotlight: Food & Nutrition

• U.S.: The Farm Bill (2018) allocated ~99% of its mandatory spending to nutrition, crop insurance, conservation, and farm commodities. SNAP remains the largest program.
• India: Starting January 2024, the PMGKAY offers free food grains for five years via the Public Distribution System (PDS)—a highly visible and direct subsidy.

Spotlight: Energy & Industry

• U.S.: Leverages the DOE Loan Programs Office (LPO) and tax credits to support clean energy and advanced manufacturing, with $30B+ in closed deals.
• India: Allocated ₹1.92 lakh crore to fertilizer subsidies in FY 2024-25. Additionally, the PLI scheme has a total outlay of ₹1.97 lakh crore across key sectors.

Spotlight: Small Business Finance

• U.S.: SBA 7(a) loans offer federal guarantees—up to 85% for smaller loans—making capital more accessible to entrepreneurs.
• India: Offers interest subvention schemes, credit guarantees, and mandates for priority-sector lending, often channeled through DBT.

Visibility & Scale: Why They Feel Different

United States
Much of the U.S. support system is off-budget, recorded as tax expenditures (lost tax revenue). While tracked by the Treasury and JCT, these forms are less visible in annual budget documents.

India
India’s subsidies are on-budget and highly visible. Key support areas—food, fertilizer, fuel, jobs—are detailed annually in Budget documents. The JAM-DBT framework has further boosted transparency and scale by reducing leakage.

Key Takeaways

• Form Factor:
  U.S. leans on indirect incentives (tax breaks, guarantees), while India uses direct subsidies and cash transfers.
• Delivery Channels:
  U.S. programs flow through agencies like IRS and SBA; India relies on DBT into Aadhaar-linked accounts via JAM.
• Flagship Programs:
  U.S.: SNAP, tax expenditures
  India: PMGKAY, fertilizer subsidies, PLI schemes