Government deficit can be reduced by an increase in taxes or a reduction in expenditure. In India, the government attempts to increase tax revenue with greater reliance on direct taxes and by raising receipts through the sale of shares in PSUs.

However, the major thrust has been towards reducing government expenditure. This can be achieved by making activities more efficient through better planning and administration. For example, the Planning Commission estimates that cash transfers could increase welfare efficiency compared to subsidies. Another approach is to change the scope of the government by withdrawing from certain areas, though cutting back on vital sectors like agriculture and health would adversely affect the economy.

A critical issue is that a major part of revenue expenditure is committed expenditure that cannot be reduced. Often, the government reduces productive capital expenditure or welfare expenditure, which leads to lower growth and adverse welfare implications.