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 code given below.

States that faced revenue deficits often respond by cutting productive capital expenditure and welfare expenditure to cover excess revenue expenses, implying welfare spending contributes to deficits.

A student could infer that adding welfare schemes (raising welfare expenditure) would likely worsen a revenue deficit unless matched by new revenues or offsets.

Explains governments reduce productive capital or welfare expenditure to cut deficits, linking deficit reduction directly to lowering welfare outlays.

One can extend this by comparing budget lines: if new welfare schemes increase committed revenue expenditure, they make cutting the deficit harder absent tax increases.

Explicitly lists ways to reduce government deficit (raise taxes or reduce expenditure) and gives an example that cash transfers can improve welfare efficiency (transfer Re1 to poor costs Rs 3.65 now).

A student could use this to argue that introducing poorly targeted welfare schemes increases costs (hurting deficit), whereas well-designed cash transfers might lower overall subsidy costs and help deficit reduction.

Presents a multiple‑choice question asking which actions can reduce a persistent deficit; the correct choices in the source (i) reducing revenue expenditure and (iii) rationalising subsidies — notably excluding 'introducing new welfare schemes'.

This suggests a pedagogical rule that adding welfare schemes is not typically considered a deficit-reduction measure; a student could check budget effects of any proposed scheme against these standard measures.

Notes welfare payments act as automatic stabilisers, sustaining consumption during slumps—showing welfare can have macroeconomic benefits despite fiscal costs.

A student might weigh stabilisation benefits (reduced output volatility) against fiscal cost when judging whether a welfare scheme is justified despite not reducing deficits.

States that deficit reduction can come from increasing tax revenue and raising receipts (e.g., sale of PSUs) — points to revenue-side measures as a route to lowering deficits.

A student could infer that expanding industries may raise tax revenues (corporate taxes, indirect/direct taxes) and thus reduce the deficit by enlarging the revenue base.

Defines fiscal deficit and highlights non-debt creating capital receipts (e.g., proceeds from sale of PSUs) as a way to reduce borrowing.

A student could extend this to reason that industrial expansion that increases asset values or enables privatization receipts would similarly provide non-borrowed receipts to lower the deficit.

Explains the multiplier effect: increased government purchases raise aggregate demand and output when resources are idle.

A student could use this to argue expanding industries (either via policy support or investment) could increase output and taxable income, boosting revenues to help deficits if there are idle resources.

Notes deficits can be inflationary unless there are unutilised resources; links output response to fiscal stance.

A student might combine this with the idea that industrial expansion in an economy with spare capacity increases real output (and thus tax base) rather than only raising prices, aiding deficit reduction.

Includes an exam-style list of actions to reduce a persistent budget deficit where 'expanding industries' appears as an option — shows it is considered a potential policy lever.

A student could treat this as an example that policymakers view industrial expansion as a candidate measure and then check empirical links (tax base, employment, exports) to assess its effectiveness.