UPSC Prelims 2015 · Question 98 of 98
UPSC Prelims 2015 question on Deficit Reduction Measures
- ExamUPSC CSE
- Year2015
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicPublic Finance
- DifficultyMedium
- TypeStatement
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.
Show answer
Answer: A. 1 and 3 only
Verdict
The answer is 1 and 3 only. Reducing revenue expenditure and rationalising subsidies cut the deficit; new welfare schemes and industrial expansion do not.
Analysis
Statement 1 is CORRECT. A budget deficit means expenditure exceeds revenue, so cutting revenue expenditure narrows the gap directly. Statement 3 is CORRECT. Subsidies are a large component of expenditure, and rationalising them reduces outgo. Statement 2 is INCORRECT. Introducing new welfare schemes adds to expenditure and therefore widens the deficit. Statement 4 is INCORRECT in the short run, since expanding industries requires capital infusion and public spending, and any revenue gain from higher output arrives much later.
How to crack it
Reduce the question to one equation and test each action against it. Deficit equals expenditure minus revenue, so an action reduces the deficit only if it lowers the left side or raises the right side now. Anything that spends today in the hope of revenue tomorrow fails a question phrased as reduce the deficit. Separating immediate accounting effect from eventual economic effect is the discipline this question rewards, and it recurs across fiscal policy items. The PDF gives no usable source for this row.