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.
Answer & explanation
Answer: (c) 1 and 3 only
A deficit is the gap between what the government spends and what it earns, so it narrows only if spending falls or receipts rise. Cutting revenue expenditure and rationalising subsidies lower spending; new welfare schemes add spending and a lower import duty cuts tax receipts, so both widen the gap.
- ✓ 1. Revenue expenditure (salaries, interest, subsidies, day-to-day running costs) is spending; reducing it directly lowers the revenue and fiscal deficits.
- ✗ 2. A new welfare scheme is fresh expenditure. Unless matched by new revenue, it enlarges the deficit.
- ✓ 3. Subsidies on food, fertiliser and fuel are a large part of revenue expenditure; targeting them better cuts spending without cutting welfare.
- ✗ 4. Import duty is a tax receipt of the Union. Lowering it reduces revenue and therefore increases the deficit.
Remember · Deficit falls only by raising receipts or cutting expenditure. Anything that adds spending or gives up tax revenue widens it.
📘 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 “the government also extends subsidies explicitly on items such as exports, interest on loans, food and fertilisers.”
Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·