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?
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalising subsidies
4. Reducing import duty
Select the correct answer using the code given below:

The correct answer is Option 3: 1 and 3 only — that is, Reducing revenue expenditure and Rationalising subsidies are the actions the Government can take to reduce a persistent budget deficit.

To understand why, let us first establish what a budget deficit means and then evaluate each statement individually.

What is a Budget Deficit?
A budget deficit occurs when the Government's total expenditure exceeds its total revenue in a given financial year. In mathematical terms:

$\text{Budget Deficit}=\text{Total Expenditure}-\text{Total Revenue}$

To reduce a deficit, the Government must either increase revenue or decrease expenditure (or both). With this principle in mind, let us examine each statement.

Statement 1 — Reducing Revenue Expenditure: ✅ CORRECT
Revenue expenditure refers to the day-to-day operational spending of the Government — such as salaries of government employees, interest payments on loans, pensions, and administrative costs. This type of spending does not create productive assets.

If the Government reduces revenue expenditure, its total outgo decreases, which directly narrows the gap between expenditure and revenue. This is one of the most direct and effective ways to reduce a fiscal deficit. Hence, Statement 1 is a valid measure.

Statement 2 — Introducing New Welfare Schemes: ❌ INCORRECT
Introducing new welfare schemes means the Government takes on additional financial obligations �� spending on healthcare, housing, food security, education programmes, etc. This increases total government expenditure.

Since:

$\text{Higher Expenditure}\Rightarrow \text{Larger Deficit}$

introducing new welfare schemes would worsen the deficit, not reduce it. Therefore, Statement 2 is not a measure to reduce the deficit.

Statement 3 — Rationalising Subsidies: ✅ CORRECT
Subsidies are a major component of Government expenditure, often accounting for a significant portion of the fiscal deficit. Rationalising subsidies means making subsidies more targeted, efficient, and leakage-free — for example, eliminating subsidies to those who do not truly need them (such as affluent households receiving fuel or fertiliser subsidies), and directing benefits only to the genuinely deserving poor (using mechanisms like Direct Benefit Transfer).

This process reduces the subsidy burden on the Government without completely withdrawing support from the vulnerable population. It therefore reduces government expenditure, helping to shrink the deficit. Statement 3 is a valid and commonly recommended fiscal consolidation measure.

Statement 4 — Reducing Import Duty: �� INCORRECT
Import duties (customs duties) are an important source of government revenue. When the Government reduces import duty, it collects less revenue from imported goods.

Since:

$\text{Lower Revenue}\Rightarrow \text{Larger Deficit}$

reducing import duty would increase the budget deficit by shrinking the revenue side. While reducing import duty may benefit trade liberalisation or consumers, it is counterproductive as a deficit-reduction measure. Hence, Statement 4 is not correct in this context.

Summary Table:

Therefore, only Statements 1 and 3 represent genuine measures to reduce a persistent budget deficit, making "1 and 3 only" the correct answer.