Read the following about Deficit reduction.
A. Government deficit can be reduced by an increase in taxes or reduction in expenditure.
B. 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).
Identify the CORRECT statement/statements.

Correct option is C

The correct answer is (c) Both A and B.
· Explanation of Statement A:
· Government Deficit Reduction: The statement is correct as a government deficit can indeed be reduced by either increasing taxes or reducing government expenditures. These are two primary fiscal measures used to control and manage a nation's budget deficit.
· Explanation of Statement B:
· Tax Revenue Strategy in India: This statement is also correct. The Indian government has increasingly focused on boosting direct tax revenues over indirect taxes. Direct taxes are considered more progressive than indirect taxes as they are based on the ability to pay principle, meaning higher income groups are taxed more heavily relative to their income than lower income groups. Indirect taxes, on the other hand, apply the same rate to everyone regardless of income, making them regressive in nature as they take a larger percentage of income from lower-income earners.
Information Booster:
· Fiscal Policy Tools: Increasing taxes (especially direct taxes) and reducing government expenditure are fundamental tools in fiscal policy used to manage economic stability and growth.
· Economic Equity: Shifting reliance towards direct taxes helps in promoting economic equity as it ensures that those with higher incomes contribute more towards the development and welfare of the economy, aligning with principles of equity and justice.