There has been a persistent deficit budget year after year. Which action/actions among 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 codes given below:

The fiscal deficit is total expenditure minus non-debt receipts, so the government narrows it either by cutting spending or by raising non-debt revenue. Statements 1 and 3 both work on the expenditure side.

• Statement 1 (correct): Cutting revenue expenditure, such as wasteful current spending or leakages in administration, directly lowers the gap between spending and receipts.
• Statement 2 (wrong): New welfare schemes add to expenditure. They can be justified on equity grounds, but they widen the deficit unless funded by new revenue.
• Statement 3 (correct): Rationalising subsidies through better targeting, Direct Benefit Transfer and reforms in fuel and fertiliser pricing reduces a large item of revenue expenditure without cutting the benefit to genuine beneficiaries.
• Statement 4 (wrong): Import duty is a source of customs revenue. Reducing it lowers receipts and therefore widens the deficit, unless the duty cut generates a large enough rise in trade to offset the loss, which is uncertain.

The core concept is fiscal arithmetic under the FRBM framework (Fiscal Responsibility and Budget Management Act, 2003). For Mains, this links to quality of public expenditure, subsidy reform and the trade-off between welfare and fiscal prudence.

Trap: Aspirants often treat anything that sounds like a reform as a deficit-reducer. Check each action against whether it changes spending or receipts in the right direction.