UPSC Prelims 2016 Question:

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:

Explanation: 

• Reducing revenue expenditure: Unnecessary revenue expenditure increases the fiscal deficit of the Government. Reduction in the revenue expenditure will lead to reduction in deficit as it forms major part of the Government’s spending. So, point 1 is correct.
  

• Introducing new welfare schemes: It will lead to further increase in the expenditure of the Government and hence, lead to further widening of the fiscal deficit. So, point 2 is not correct.

• Rationalizing subsidies: Subsidies form a major component of Government’s spending and a reduction in it will lead to reduction in fiscal deficit. So, point 3 is correct.

• Reducing import duty: It will lead to a decline in tax revenue. Given the expenditure of the Government, a decline in tax revenue will lead to decline in fiscal deficit. So, point 4 is not correct.
  
  

Therefore, option (3) is the correct answer.

Subject: Economics | Public Finance