Consider the following actions which the Government can take: 1. Devaluing the domestic currency. 2. Reduction in the export subsidy. 3. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the above action/actions can help in reducing the current account deficit?

1. Statement 1 is correct: Devaluing the domestic currency makes exports cheaper for foreign buyers and imports more expensive for domestic consumers. This tends to increase export earnings and decrease import expenditure, thereby helping to reduce the current account deficit (CAD). 2. Statement 2 is incorrect: A reduction in the export subsidy would make exports less competitive or profitable, potentially leading to a decrease in exports. This would likely worsen the CAD, not reduce it. 3. Statement 3 is correct: Attracting greater FDI (Foreign Direct Investment) and more funds from FIIs (Foreign Institutional Investors) increases the inflow of foreign capital. While these flows are recorded in the capital account and primarily finance the CAD, they help manage the overall balance of payments situation and alleviate the pressure caused by a CAD by providing foreign exchange. In a broader sense of managing the deficit problem, this action is considered helpful. Therefore, actions 1 and 3 can help in the context of reducing or managing the current account deficit.