Which of the following measures would reduce the fiscal deficit of the government but leave its revenue deficit unchanged?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A cut in capital expenditure on new government buildings
Revenue deficit uses only revenue items. Fiscal deficit = revenue deficit + capital expenditure − non-debt creating capital receipts. So a change in a capital item moves the fiscal deficit alone.
Option (1) A cut in capital expenditure on new government buildings — Correct. Buildings are capital expenditure. The fiscal deficit falls; the revenue deficit does not change.
Option (2) A rise in income tax collections — Incorrect. Income tax is a revenue receipt. It lowers both deficits.
Option (3) A cut in subsidies on food — Incorrect. Subsidies are revenue expenditure. The cut lowers both deficits.
Option (4) A cut in the salaries paid to government employees — Incorrect. Salaries are revenue expenditure too, so both deficits fall.
NCERT (2026-27): “5.2.1 Measures of Government Deficit … From the way gross fiscal deficit is measured as given above, it can be seen that revenue deficit is a part of fiscal deficit (Fiscal Deficit = Revenue Deficit + Capital Expenditure - non-debt creating capital receipts). …” “… The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. …” “Capital Expenditure There are expenditures of the government which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans and advances by the central government to state and union territory governments, PSUs and other parties. …” |