(C) Budding — The diagram shows a Hydra with a small bud (protrusion) on its body, which will develop into a new individual. This is budding.
The key visual clue is the small outgrowth (bud) on the Hydra's body. The textbook explicitly states: "Organisms such as Hydra can give out buds which mature into new individuals." Budding is distinct from binary fission (splits into two equal halves), multiple fission (many daughter cells at once), and fragmentation (organism breaks into pieces).