Correct Option (d)
Actions 1 and 3 can help in reducing the current account deficit.
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Devaluing the domestic currency (Action 1): Devaluation makes a country's exports cheaper for foreign buyers and imports more expensive for domestic consumers. This typically stimulates exports and curtails imports, leading to an improvement in the trade balance and a reduction in the current account deficit.
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Adopting suitable policies which attract greater FDI and more funds from FIIs (Action 3): Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) represent capital inflows into an economy. While these are recorded in the capital account, a strong inflow of foreign capital provides the necessary financing for a current account deficit. This eases the pressure on foreign exchange reserves and the overall external balance, thereby indirectly helping to manage and reduce the current account deficit by providing funding for the deficit.
Incorrect Options
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Reduction in the export subsidy (Action 2): Export subsidies are provided by the government to make domestic goods more competitive in international markets. A reduction in export subsidies would increase the effective cost of exports for producers, making them less competitive globally. This would likely lead to a decrease in exports, which would worsen the current account deficit rather than reduce it.
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Options (a), (b), and (c) are incorrect because they either include Action 2 as a measure to reduce the current account deficit or exclude Action 1 and/or Action 3, which are effective measures.