Which of the following options, which is a way through which the government can reduce its budgetary deficit?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: Disinvestment
When the government sells a part or whole of its ownership in public sector enterprises, it receives funds. These receipts increase government revenue, thereby reducing the gap between expenditure and receipts (budgetary deficit).
Why the other options are not correct:
- Option 1: Initiating the process to borrow: Borrowing does not reduce the deficit; it is a way of financing the deficit after it has occurred.
- Option 3: Deficit financing: This also does not reduce the deficit; it simply refers to methods (like printing money or borrowing) used to meet the deficit.