Question 17 from UPSC CSE 2015 - Economy

Question

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.

IASCODEX · Accepted Answer

Correct Option: A. 1 and 3 only

Strategy: Select actions that directly reduce government expenditure. Prioritize reducing revenue expenditure and rationalizing subsidies. Avoid introducing new welfare schemes or expanding industries, as these increase or maintain spending. The focus is solely on lowering expenditure to address the deficit.

Key Info: **Deficit Budget**
A deficit budget occurs when government expenditures exceed its revenues, resulting in a fiscal deficit.

**Expenditure Types**
- **Revenue Expenditure:** Includes regular expenses like salaries, interest payments, and subsidies. Reducing this directly improves the fiscal balance.
- **Capital Expenditure:** Involves spending on long-term assets, such as expanding industries. This often raises total spending before any long-term revenue gains are realized.

**Impact of Specific Actions**
- **Rationalizing Subsidies:** Making subsidies more targeted or reducing their amount lowers expenditure without necessarily cutting essential services.
- **Welfare Schemes:** These typically increase revenue expenditure as they involve public spending on social sectors.

**Fiscal Consolidation**
Common measures to address deficits include expenditure rationalization, curbing non-essential spending, and increasing efficiency in public outlays. Governments, like India, often address continual fiscal deficits through such expenditure-side interventions.

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option C: 1 only

IASCODEX · Answer

Option D: 1, 2, 3, and 4