UPSC Prelims 2016 · Question 28 of 98
UPSC Prelims 2016 question on Deficit Reduction Measures
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicPublic Finance
- DifficultyMedium
- TypeStatement
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.
Show answer
Answer: C. 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 lower import duty do not.
Analysis
Statement 1 is CORRECT. A deficit means expenditure exceeds revenue, so cutting revenue expenditure narrows the gap directly. Statement 3 is CORRECT. Subsidies are a major expenditure item and rationalising them reduces outgo. Statement 2 is INCORRECT. New welfare schemes add to expenditure and widen the deficit. Statement 4 is INCORRECT. Import duty is a source of revenue, so reducing it lowers receipts and widens the deficit rather than narrowing it.
Source
Press reporting on subsidy rationalisation, and the same question set in the 2015 paper.
How to crack it
Reduce the whole question to one equation, deficit equals expenditure minus revenue, and test each action for whether it lowers the left side or raises the right side. Note also that this is very nearly a repeat of a 2015 question with one statement changed, which is the strongest possible argument for working old papers rather than only reading. When a repeat appears, the changed statement is where the marks are, so read the list against your memory of the earlier version.