Governments are seeking to improve farming methods, infrastructure, and access to finance, rather than subsidizing fertilizers, seeds, and fuel. Photo by Bishnu Sarangi

Subsidy reform is often seen as raising prices and cutting support. In practice, it is more about transforming how governments provide support so that it is better targeted, efficient, and more sustainable in the long term. Experience from South Asia shows that subsidy reform works best when it is part of wider efforts to improve public finances, strengthen institutions, and protect vulnerable people.

One clear lesson is that subsidies are not just about pricing. They run through tax systems, state-owned enterprises (SOEs), financial markets, and local service providers.

In Bangladesh, fiscal and governance reforms have targeted ineffective tax breaks and exemptions, wasteful public spending, and reducing losses from SOEs. In India, better budget and accounting systems have made it easier to track subsidies, while digital cash transfers have improved targeting for food, energy, and income support. Municipal finance reforms in Indian cities have focused on stronger property taxes, more realistic user fees for urban services and their wider collection to reduce the need for subsidies.

Hidden subsidies in the financial sector are another important frontier. State-owned banks have long provided cheap credit to favored sectors, often backed by guarantees when loans go bad. In Bangladesh banking sector reforms aimed at monitoring the quality of credit to reduce the need for government support. In Bhutan, India, and Sri Lanka, programs are shifting from broad-based subsidized credit toward market-based finance for small businesses with guarantees from the government to partially cover the banks’ lending risks. 

Energy remains a central focus of reform. Rather than relying only on tariff hikes, which can raise concerns over affordability, countries are tackling the drivers of high costs of energy generation. 

In Maldives, investments in renewable energy are gradually reducing reliance on fossil fuel as the main source of electricity. In Nepal and India, investments in energy network infrastructure have helped lower the transmission and distribution losses. In Bangladesh, grid modernization and smart meters are improving billing and collection. Sri Lanka shows how adjustments in tariffs to cover costs can work when combined with restructuring and better governance of state-owned public utilities.

The focus in agriculture and food systems is also evolving. In Bhutan, support has moved from recurrent subsidies for fertilizers and seeds toward measures that raise farmers’ productivity, such as better access to credit, more resilient production methods, and integration with agro-businesses. In Nepal, irrigation and agriculture programs have combined infrastructure with grants and credit guarantees that help farmers invest without long-term subsidy dependence.