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.
Answer & explanation
Answer: (a) 1 and 3 only
A deficit falls when the government spends less or earns more. Cutting revenue expenditure and rationalising subsidies both lower spending. New welfare schemes add spending, so they widen the deficit. Expanding industries is not a direct budgetary step to cut the deficit.
- ✓ 1. Government deficit can be reduced by raising taxes or reducing expenditure. Trimming revenue expenditure (salaries, interest, subsidies and similar items) lowers the revenue deficit and the fiscal deficit.
- ✗ 2. New welfare schemes are additional spending. Unless they are matched by new revenue, they raise the deficit.
- ✓ 3. Subsidy delivery can be costly: to transfer Re 1 to the poor, the government spends Rs 3.65 in the form of food subsidy. Rationalising subsidies, for example through cash transfers, saves money and can improve welfare.
- ✗ 4. Expanding industries does not directly raise government receipts or cut government spending. Any extra tax revenue would come only indirectly, in the long run, and is uncertain. The direct routes are higher taxes, other non-debt receipts, or lower expenditure.
Remember · Deficit reduction means raising taxes or other non-debt receipts (such as PSU disinvestment), or cutting expenditure. Rationalising subsidies is a key way to curb spending.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “Government deficit can be reduced by an increase in taxes or reduction in expenditure.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 5 “to transfer Re1 to the poor, government spends Rs 3.65 in the form of food subsidy, showing that cash transfers would lead to increase in welfare.”
Question: UPSC Civil Services (Preliminary) 2015, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
