In the context of governance, consider the following:

Correct Option

Fiscal deficit represents the excess of total government expenditure over its total receipts (excluding borrowings). Measures to control it primarily involve either increasing government receipts or reducing government expenditure.

• Statement 3: Down-sizing of bureaucracy directly reduces the government's revenue expenditure on salaries, pensions, and administrative overheads. This reduction in expenditure contributes to lowering the fiscal deficit.
• Statement 4: Selling or offloading shares of Public Sector Undertakings (PSUs) constitutes disinvestment. The proceeds from disinvestment are classified as non-debt capital receipts for the government, which directly reduce the fiscal deficit.

Incorrect Options

• Statement 1: Encouraging Foreign Direct Investment (FDI) inflows contributes to capital formation, economic growth, and the balance of payments. However, FDI represents private capital inflow and does not directly impact the government's revenue or expenditure, which are the direct components determining fiscal deficit.
• Statement 2: Privatization of higher educational institutions may lead to a reduction in the government's long-term financial burden in the education sector and potentially improve efficiency. However, it is not a direct or immediate measure for controlling the current fiscal deficit. Its impact on government finances is indirect and generally long-term, unlike the direct impact of expenditure reduction or asset monetization.