Indian Economy 1950-1990 — Economics STD 12 Humanities & Commerce — Question

Prices are signals of availability of goods. Rising prices reflect scarcity and lead to a judicious use of scarce resources and goods. Subsidies do not allow the prices to indicate the supply of a good. When goods are available at subsidised rates, it might result in overuse of resources without any concern for scarcity. Thus, subsidies are an incentive for wasteful use of resources.