There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? 1. Reducing revenue expenditure 2. Introducing new welfare schemes 3. Rationalizing subsidies 4. Reducing import duty Select the correct answer using the code given below.

QUESTION

Medium

Economy

Prelims 2016

There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?

Reducing revenue expenditure
Introducing new welfare schemes
Rationalizing subsidies
Reducing import duty

Select the correct answer using the code given below.

Select an option to attempt

Explanation

Statement 1 is Correct: Reducing revenue expenditure (spending that does not create assets or reduce liabilities, such as interest payments, salaries, and administrative costs) lowers the total government outgo, thereby reducing the budget deficit. Statement 2 is Incorrect: Introducing new welfare schemes increases government spending (typically revenue expenditure), which would widen the budget deficit rather than reduce it. Statement 3 is Correct: Rationalizing subsidies involves making them more targeted (e.g., through Direct Benefit Transfer) to eliminate leakages and reduce wasteful revenue expenditure, which helps in narrowing the deficit. Statement 4 is Incorrect: Reducing import duties decreases the government's tax revenue (receipts). A decrease in revenue, assuming expenditure remains constant, leads to an increase in the budget deficit.

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