UPSC Prelims 2015 Question:

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

1. Reducing revenue expenditure 
2. Introducing new welfare schemes 
3. Rationalizing subsidies 
4. Expanding industries
   
   

Select the correct answer using the code given below.

Explanation:

• When the government spends more than it receives in tax and other revenues, it borrows to cover the difference. A budget deficit occurs when expenses exceed revenue.

• Reducing revenue expenditure would reduce the deficit. Subsidies are also part of the expenditure. Rationalizing subsidies will also reduce expenditure too. So, points 1 and 3 are correct.
  
  
• Introducing new welfare schemes or expanding industries will result in more expenditure leading to the widening of the budget deficit. So, points 2 and 4 are not correct.
  
  

Therefore, option (1) is the correct answer.

Subject: Economics | Public Finance