{"id":1876,"date":"2024-03-30T01:05:48","date_gmt":"2024-03-29T19:35:48","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1876"},"modified":"2024-04-03T07:09:32","modified_gmt":"2024-04-03T01:39:32","slug":"q-there-has-been-a-persistent-deficit-budget-year-after-year-which-action-actions-of-the-following-can-be-taken-by-the-government-to-reduce-the-deficit","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-there-has-been-a-persistent-deficit-budget-year-after-year-which-action-actions-of-the-following-can-be-taken-by-the-government-to-reduce-the-deficit","title":{"rendered":"Q.\u00a0There has been a persistent deficit budget year after year. Which action\/actions of the following can be taken by the Government to reduce the deficit?"},"content":{"rendered":"\n
    \n
  1. Reducing revenue expenditure<\/li>\n\n\n\n
  2. Introducing new welfare schemes<\/strong><\/li>\n\n\n\n
  3. Rationalizing subsidies<\/li>\n\n\n\n
  4. Reducing import duty<\/strong><\/li>\n<\/ol>\n\n\n\n

    Select the correct answer using the code given below.<\/p>\n\n\n\n

      \n
    • 1 only<\/li>\n\n\n\n
    • 2 and 3 only<\/li>\n\n\n\n
    • 1 and 3 only<\/li>\n\n\n\n
    • 1, 2, 3 and 4<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer:<\/strong> (c) 1 and 3 only<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Budget Deficit:<\/h5>\n\n\n\n
        \n
      • A budget deficit occurs when expenditures surpass revenue and then up impacting the financial health of a country<\/strong>. <\/li>\n\n\n\n
      • Certain unanticipated events and policies may cause budget deficits.<\/li>\n\n\n\n
      • Countries can counter budget deficits by raising taxes or cutting spending.<\/strong><\/li>\n<\/ul>\n\n\n\n
        Types of deficit<\/h5>\n\n\n\n
          \n
        • Revenue Deficit<\/strong>:\n
            \n
          • It refers to the\u00a0excess of total revenue expenditure of the government over its total revenue receipts<\/strong>.\n
              \n
            • Revenue deficit = Total Revenue expenditure \u2013 Total Revenue receipts.<\/li>\n\n\n\n
            • OR Revenue deficit = Total Revenue expenditure \u2013 (Tax Revenue + Non-Tax Revenue)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n
            • Fiscal Deficit<\/strong>:\n
                \n
              • Fiscal deficit is defined as\u00a0excess of total expenditure over total receipts excluding borrowings during a fiscal year.<\/strong>\n
                  \n
                • Fiscal deficit = Total budget expenditure \u2013 Total budget receipts excluding borrowings<\/li>\n\n\n\n
                • OR Fiscal Deficit = (Revenue expenditure + Capital expenditure) \u2013 (Revenue Receipts + Capital receipts excluding borrowings)<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                • Fiscal deficit shows the borrowing requirements of the govt. during the budget year.<\/strong> Fiscal deficit reflects the borrowing requirements of the govt. for financing the expenditure including interest payments.<\/li>\n\n\n\n
                • Fiscal deficit = Revenue expenditure + capital expenditure \u2013 Revenue receipts \u2013 capital Receipts excluding borrowings<\/li>\n\n\n\n
                • OR Fiscal deficit = Revenue expenditure + capital expenditure \u2013 Tax Revenue \u2013 Non-Tax Revenue \u2013 recovery of loans \u2013 disinvestment OR Fiscal deficit = Total borrowing requirement of the government<\/li>\n\n\n\n
                • Fiscal deficit indicates the additional number of financial resources needed to meet government expenditure.<\/strong><\/li>\n\n\n\n
                • It is an indicator of the increase in future liabilities of the government on interest payment and loan repayment.<\/strong> The government has to pay back the borrowed amount with interest in future. Consequently, the government has to either borrow more from the people or tax people more in future to pay interest and loan amount.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                • Primary Deficit<\/strong>:\n
                    \n
                  • Primary deficit is defined as fiscal deficit minus interest payments on previous borrowings<\/strong>.<\/li>\n\n\n\n
                  • Primary deficit shows the borrowing requirements of the govt. for meeting expenditure excluding interest payment.<\/strong><\/li>\n\n\n\n
                  • Gross Primary deficit = Fiscal deficit \u2013 Interest payments<\/li>\n\n\n\n
                  • Net Primary deficit<\/strong> = Fiscal deficit + Interest received \u2013 Interest payments. It shows the total amount that the central government needs to borrow.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                    Fiscal Deficit<\/h5>\n\n\n\n
                      \n
                    • Fiscal deficit refers to the shortfall in a government\u2019s revenue<\/strong> when compared to its expenditure.<\/li>\n\n\n\n
                    • When a government\u2019s expenditure exceeds its revenues,<\/strong> the government will have to borrow money or sell assets<\/strong> to fund the deficit.<\/li>\n\n\n\n
                    • Taxes are the most important source of revenue<\/strong> for any government. In 2024-25, the government\u2019s tax receipts are expected to be Rs 26.02 lakh crore while its total revenue is estimated to be Rs 30.8 lakh crore.<\/li>\n\n\n\n
                    • When a government runs a fiscal surplus,<\/strong>\u00a0on the other hand, its revenues exceed expenditure.\n
                        \n
                      • It is, however, quite rare for governments to run a surplus<\/strong>. Most governments today focus on keeping the fiscal deficit under control rather than on generating a fiscal surplus<\/strong> or on balancing the budget.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                        Why is it Important to Worry About Fiscal Deficit?<\/h6>\n\n\n\n
                          \n
                        • Impact on Inflation:<\/strong>\n
                            \n
                          • There is a strong direct relationship between the government\u2019s fiscal deficit and Inflation in the country.<\/li>\n\n\n\n
                          • When a country\u2019s government runs a persistently high fiscal deficit, this can eventually\u00a0lead to higher inflation<\/strong>\u00a0as the government will be\u00a0forced to use fresh money issued by the central bank to fund its fiscal deficit.<\/strong>\n
                              \n
                            • The fiscal deficit in 2020 reached a high of 9.17% of GDP<\/strong> during the pandemic. It has since decreased significantly and is expected to reach 5.8% in 2023-24.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                            • Fiscal Discipline Improves Ratings:<\/strong>\n
                                \n
                              • A lower fiscal deficit indicates better government fiscal discipline. This can lead to higher ratings for Indian government bonds.<\/li>\n\n\n\n
                              • When the government relies more on tax revenues and borrows less, it boosts lender confidence and lowers borrowing costs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                              • Management of Public Debt:<\/strong>\n
                                  \n
                                • A high fiscal deficit<\/strong> can also adversely affect the ability of the government to manage its overall public debt.<\/strong><\/li>\n\n\n\n
                                • In December 2023, the IMF warned that India\u2019s public debt could rise to more than 100% of GDP in the medium term due to risks.<\/li>\n\n\n\n
                                • A lower fiscal deficit may help the government to more easily sell its bonds overseas and access cheaper credit<\/strong> from the international bond market.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                                  What can be Done to Manage Fiscal Deficit and National Debt in India?<\/h6>\n\n\n\n
                                    \n
                                  • Fiscal Discipline and Consolidation:<\/strong>\n
                                      \n
                                    • Adhering to fiscal consolidation targets, as outlined in the FRBM Act is crucial.<\/li>\n\n\n\n
                                    • The government should aim to gradually reduce the fiscal deficit-to-GDP ratio to ensure sustainable public finances.<\/strong><\/li>\n\n\n\n
                                    • Implementing prudent fiscal policies, including expenditure rationalisation, revenue enhancement measures, and subsidy reforms, can help in reducing the reliance on borrowing<\/strong> and mitigating fiscal imbalances.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                    • Enhancing Revenue Mobilisation:<\/strong>\n
                                        \n
                                      • Strengthening tax administration and compliance to broaden the tax base<\/strong> and improve revenue collection.<\/li>\n\n\n\n
                                      • Exploring avenues for diversifying revenue sources,<\/strong> such as introducing new taxes or levies on luxury goods, wealth, or environmental taxes.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                      • Rationalising Expenditures:<\/strong>\n
                                          \n
                                        • Conducting a comprehensive review of government expenditures to identify inefficiencies and prioritise spending in key areas such as healthcare, education, and infrastructure.<\/li>\n\n\n\n
                                        • Implementing measures to curb non-essential spending and subsidies,<\/strong> while ensuring targeted support for vulnerable populations.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                        • Debt Management Strategies:<\/strong>\n
                                            \n
                                          • Developing a prudent debt management strategy to optimise borrowing costs and minimise refinancing risks.<\/strong><\/li>\n\n\n\n
                                          • Diversifying the investor base and sources of financing,<\/strong> including domestic and international markets, to mitigate exposure to market volatility.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                          • Long-Term Structural Reforms:<\/strong>\n
                                              \n
                                            • Undertaking structural reforms aimed at improving the efficiency and competitiveness of the economy,<\/strong> including labour market reforms, ease of doing business<\/strong> initiatives, and governance reforms.<\/li>\n\n\n\n
                                            • Addressing structural bottlenecks and challenges in sectors<\/strong> such as agriculture, manufacturing, and services to unleash growth potential and enhance fiscal sustainability.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                                              Select the correct answer using the code given below. Answer: (c) 1 and 3 only Budget Deficit: Types of deficit Fiscal Deficit Why is it Important to Worry About Fiscal Deficit? What can be Done to Manage Fiscal Deficit and National Debt in India?<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[57],"class_list":["post-1876","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-57"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":57,"label":"2016"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1876","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1876"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1876\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1876"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1876"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1876"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1876"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}