How are illustrations on 'palm manuscripts' created?

The correct answer is Option 3 - Engraving with a steel stylus

Illustrations on palm manuscripts are created by incising with a steel stylus and then filled in with ink, sometimes tinted with paint.

Patachitras are done on small strips of cotton cloth, which is prepared by coating the cloth with soft white stone powder and glue made from tamarind seeds. There is a practice of making the borders first. A sketch of the figures is, then, made directly with a brush and flat colours are applied. Colours, such as white, black, yellow and red are, usually, used. After completion, the painting is held over charcoal fire and lacquer is applied to the surface to make it water resistant and lend sheen to it. The colours are organic and locally procured. For example, black is obtained from lamp black, yellow and red from haritali and hingal stone, respectively, and white from powdered conch shells. Palm manuscripts are illustrated on a palm variety called Khar-taad. Paintings on these are not painted with brush but incised by a steel stylus, and then, filled in with ink, and sometimes, tinted with paint. There may also be some text accompanying these images. There are questions on whether to consider the palm leaf tradition a part of folk or sophisticated art as it has a lineage that stylistically connects it to the mural and palm leaf traditions of the eastern and other parts of the country.