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Question

India's fiscal deficit widens significantly due to increased Government spending on subsidies while tax revenue remains unchanged. Which one of the following is the most likely consequence?

This question was previously asked in
CDS 2 2026 Maths Question Paper (13-Sep-2026)
The correct answer is

Inflation will rise, interest rates may rise, and private investment may slow down

When the fiscal deficit widens mainly because of higher subsidy (unproductive/current) spending while tax revenue stays flat, the government must borrow more, which tends to push inflation upward and can raise interest rates. Such an inflationary, higher-interest-rate environment generally makes conditions less favourable for private investment, so private investment growth may slow rather than accelerate.

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