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.
1 and 2
1 and 3
2 only
1, 2 and 4
Answer is Right!
Answer is Wrong!
This question was previously asked in
UPSC IAS – 2016
1. **Reducing revenue expenditure:** Revenue expenditure includes government spending on salaries, pensions, interest payments, subsidies, etc., which do not create assets. Reducing these items directly lowers total government expenditure, thus helping to reduce the fiscal deficit. This action is correct.
2. **Introducing new welfare schemes:** Welfare schemes involve government spending, typically revenue expenditure (e.g., subsidies, direct benefit transfers). Introducing new schemes increases government expenditure, which would likely increase the fiscal deficit, not reduce it. This action is incorrect.
3. **Rationalizing subsidies:** Subsidies are a significant part of government expenditure. Rationalizing subsidies (e.g., by targeting them better, reducing their amount, or phasing them out) reduces government expenditure, thus helping to reduce the fiscal deficit. This action is correct.
4. **Reducing import duty:** Import duties (customs duties) are a source of tax revenue for the government. Reducing import duties would decrease government revenue (unless the reduction stimulates imports so much that the volume effect outweighs the rate reduction, which is not guaranteed), thus increasing the fiscal deficit. This action is incorrect.