| Fiscal consolidation is one of the objectives of India's economic policy. Which of the following would help in fiscal consolidation? |
| 1. Increasing taxes |
| 2. Getting more loans |
| 3. Reducing subsidies |
| Select the correct answer using the codes given below. |
A) 1 and 2 only
B) 1 and 3 only
C) 2 and 3 only
D) 1, 2 and 3
Correct Answer: B
Solution :
Fiscal consolidation is a reduction in the underlying fiscal deficit. So, by increasing revenues and decreasing expenditure, we can undertake fiscal consolidation. While getting more loans may increase receipts, it will not help in fiscal consolidation as that loan has to be repaid back along with interest. So loans add more to the expenditure than it contributes to receipts. Increasing taxes and reducing subsidies will of course increase revenues and decrease expenditure respectively contributing to fiscal consolidation.
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