Question

 Should we treat subsidies as transfer payments?

Answer 1

No, subsidies should not be treated as transfer payments because value addition has already occurred. In fact, subsidies tend to lower the market price of the goods produced. Subsidies are the part of NNP fc which is why these are deducted from factor cost to equate it with Market Price. 

Comments

as per cbse' marking scheme of 2020 question paper , set 58/5/1 answer should be The given statement is defended, as subsidy is a transfer payment. Subsidy is the financial assistance provided by the government to producers to fulfil its social welfare objectives. Government does not get anything in consideration for the same. It does not contribute to the current flow of goods and services and hence do not contribute to any value addition.