Previous Year Question

A Budget Deficit arises when Government expenditure exceeds its non-debt receipts. Fiscal Deficit is represented as:

Fiscal Deficit=Total Expenditure-Revenue Receipts-Non-debt Capital Receipts

A Government can consequently reduce its deficit principally by:

• Rationalising expenditure; or

• Increasing Tax and Non-tax Revenue.

Statement 1 is correct

Revenue Expenditure generally does not create a lasting physical or financial asset for the Government. It includes:

• Salaries and pensions

• Interest payments

• Subsidies

• Administrative expenses

• Maintenance expenditure

• Revenue grants

Reducing wasteful or low-priority Revenue Expenditure lowers total Government expenditure. Other things remaining constant, it can reduce both the Revenue Deficit and Fiscal Deficit.

This does not imply indiscriminate cuts in essential expenditure on health, education or nutrition. The objective is to eliminate wasteful expenditure while protecting priority spending.

Therefore, Statement 1 is correct.

Statement 2 is incorrect

Introducing new welfare schemes normally requires additional Government expenditure. Unless financed by additional revenue or an equivalent reduction elsewhere, it may:

• Increase Revenue Expenditure;

• Increase the Government’s borrowing requirement; and

• Widen the Fiscal Deficit.

Welfare programmes may be socially necessary, but introducing new schemes is not by itself a direct deficit-reduction measure.

Statement 3 is correct

Subsidy rationalisation does not necessarily mean abolishing every subsidy. It may involve:

• Restricting benefits to genuine beneficiaries;

• Preventing leakage and duplication;

• Removing ineligible beneficiaries;

• Using Direct Benefit Transfer—DBT;

• Replacing universal subsidies with targeted support;

• Reviewing schemes according to outcomes.

Lower and better-targeted subsidy expenditure can reduce Revenue Expenditure and the Fiscal Deficit while protecting deserving beneficiaries.

Therefore, Statement 3 is correct.

Statement 4 is incorrect

Industrial expansion may increase production, employment and Tax Revenue over the long term. However, Government-led industrial expansion may initially require additional spending on infrastructure, capital support and incentives.

It therefore cannot be treated as an immediate and certain measure for reducing the current Budget Deficit.