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 codes given below:

The answer is A, because reducing revenue expenditure and rationalizing subsidies both cut the government's borrowing need directly. The fiscal deficit is total expenditure minus non-debt receipts, so anything that lowers spending or improves the balance helps.

• Statement 1 is correct. Cutting revenue expenditure such as subsidies, grants and administrative spending lowers the deficit immediately. Expenditure control is the first lever the FRBM Act, 2003 relies on.
• Statement 2 is wrong. New welfare schemes add to expenditure and widen the deficit unless they are financed by matching revenue.
• Statement 3 is correct. Targeting subsidies through direct benefit transfer and removing leakages reduces the subsidy bill without cutting benefits to the intended beneficiaries.
• Statement 4 is wrong for this purpose. Expanding industries is a growth measure. It may raise tax revenue over time, but it does not reduce the deficit in the current budget and usually needs upfront investment.

Core concept: the fiscal deficit and the difference between revenue and capital expenditure. Mains angle: quality of public expenditure and the case for subsidy reform.

Trap: aspirants pick D because expanding industries sounds like a way to earn more revenue. Ask whether the measure reduces the deficit now, not whether it helps the economy later.