Correct Option
A budget deficit arises when government expenditure surpasses its revenue. To mitigate such a deficit, the government must either enhance its revenue streams or curtail its expenditures.
- Reducing revenue expenditure (action 1), which includes administrative costs, salaries, and non-essential operational expenses, directly lowers the government's outlays. This reduction in spending contributes to narrowing the budget deficit.
- Rationalizing subsidies (action 3) involves reviewing, restructuring, or better targeting subsidies to ensure efficiency and reduce their overall quantum. This measure decreases the financial burden on the exchequer, thereby aiding in deficit reduction.
Therefore, both reducing revenue expenditure and rationalizing subsidies are effective strategies for the government to reduce a persistent budget deficit.
Incorrect Options
- Introducing new welfare schemes (action 2) typically entails increased government spending to fund these initiatives. Such an increase in expenditure would exacerbate the budget deficit rather than reduce it.
- Expanding industries (action 4) is primarily an economic growth strategy aimed at boosting production, employment, and overall economic activity. While it may lead to increased tax revenues in the long term, it is not an immediate or direct measure to reduce an existing budget deficit. Furthermore, government support for industrial expansion might initially require public investment, potentially increasing expenditure.