Statement: Due to financial stringency, the State Government has been unable to pay employee salaries for the last three months.\nCourses of Action:\nI. Reduce wasteful expenditure and arrange to pay pending salaries at the earliest.\nII. Immediately curtail staff strength.

Introduction / Context:
Salary arrears for three months indicate acute cash-flow stress and governance risk. Appropriate action must restore obligations while preserving essential services and morale.

Given Data / Assumptions:

• Liquidity shortfall is acknowledged.
• Spending includes wasteful/non-critical heads that can be deferred or cut.
• Abrupt staff curtailment has legal, moral, and operational consequences.

Concept / Approach:
I proposes expenditure rationalisation and prioritisation of salaries—consistent with fiscal responsibility and contractual obligations. II suggests immediate downsizing, which is slow to implement (due process, payouts) and can worsen finances short-term (severance, litigation), besides impacting service delivery.

Step-by-Step Solution:
1) Freeze non-essential capex/opex; reprioritise budgets towards salary arrears.2) Improve cash management: advance grants, bridge financing, and revenue acceleration (dues collection).3) Medium-term reforms: expenditure reviews, subsidy targeting, and structural revenue measures.

Verification / Alternative check:
Immediate staff cuts neither generate instant cash nor avoid severance costs; paying employees sustains public services and prevents attrition.

Why Other Options Are Wrong:
Only II/Either/Both: II is impracticable as an immediate remedy. “Either” equates a feasible measure with a counterproductive one.

Common Pitfalls:
Across-the-board cuts that harm critical departments; unpaid salaries leading to strikes and talent flight.

Final Answer:
Only I follows.