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 scheme
3. Rationalizing subsidies
4. Reducing import duties

Select the correct answer using the code below:

1. 1 only
2. 2 and 3 only
3. 1 and 3 only
4. 1, 2, 3 and 4

Explanation

Reducing Revenue Expenditure is correct

• Revenue expenditure includes routine expenses such as salaries, pensions, and interest payments, which do not create assets. By cutting down on these expenditures, the government can reduce its overall spending, directly contributing to lowering the budget deficit.

Introducing a new welfare scheme is incorrect

• Introducing new schemes increases government spending, potentially increasing the deficit rather than reducing it.

Rationalising subsidies is correct

• Rationalisation means making subsidies more efficient, often by limiting them to targeted groups or reducing non-essential subsidies. By doing so, the government can reduce unnecessary expenditure, helping to shrink the budget deficit.

Reducing import duties is incorrect

• Import duties are a source of revenue for the government. Reducing them would decrease revenue and could even increase imports, which could worsen the deficit rather than help reduce it.

Answer: (c) 1 and 3; Difficulty Level: Medium