Option 1 -> Increasing subsidies raises government expenditure, thereby increasing fiscal deficit.
Option 2 -> Increasing proceeds from sale of PSUs generates non-tax revenue through disinvestment, helping reduce fiscal deficit.
Option 3 -> Investing in public goods increases government expenditure, thereby increasing fiscal deficit.
Option 4 -> Decreasing tax burden reduces government revenue, thereby increasing fiscal deficit.
Hence, Option 2: Increasing proceeds from the sale of PSUs -> Fiscal Deficit = Total Expenditure - Total Revenue (excluding borrowings). To reduce fiscal deficit, the government must either increase revenue or decrease expenditure. Disinvestment through sale of Public Sector Undertakings (PSUs) generates non-tax revenue (capital receipts), which increases total government revenue without raising expenditure. This directly helps in bridging the gap between expenditure and revenue, thus reducing the fiscal deficit. -> correct