Consider the following statements about deficit reduction in India:
(A) A government deficit can be reduced by an increase in taxes or a reduction in expenditure.
(B) The government has been trying to increase tax revenue with greater reliance on direct taxes.
(C) Indirect taxes are progressive in nature.
(D) The major thrust has been towards reduction in government expenditure.
(E) Cutting back government programmes in agriculture, education and health would help the economy.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
A deficit falls when taxes rise or spending falls. India has leaned on direct taxes and, above all, on cutting expenditure.
(A) A government deficit can be reduced by an increase in taxes or a reduction in expenditure. — Correct. These are the two ways.
(B) The government has been trying to increase tax revenue with greater reliance on direct taxes. — Correct. Direct taxes are preferred.
(C) Indirect taxes are progressive in nature. — Incorrect. Indirect taxes are regressive: they impact all income groups equally.
(D) The major thrust has been towards reduction in government expenditure. — Correct. For example, by better planning and administration.
(E) Cutting back government programmes in agriculture, education and health would help the economy. — Incorrect. Such cuts would adversely affect the economy.
NCERT (2026-27): “Deficit Reduction: Government deficit can be reduced by an increase in taxes or reduction in expenditure. In India, the government has been trying to increase tax revenue with greater reliance on direct taxes (indirect taxes are regressive in nature – they impact all income groups equally). … However, the major thrust has been towards reduction in government expenditure. This could be achieved through making government activities more efficient through better planning of programmes and better administration. … Cutting back government programmes in vital areas like agriculture, education, health, poverty alleviation, etc. would adversely affect the economy. …” |