The correct option is Option 1: Both A and R are true, and R is the correct explanation of A.

Explanation:

1. Assertion (A): An important policy instrument of economic liberalization is a reduction in import duties on capital goods.

This statement is true. Economic liberalization refers to the reduction of government regulations and barriers in the economy, allowing for more open and free markets. One of the key policy instruments used in economic liberalization is the reduction of import duties on capital goods. Capital goods are the machinery, equipment, and tools used in the production process. By reducing import duties on capital goods, countries aim to promote investment, enhance productivity, and encourage technological advancements.

2. Reason (R): Reduction in import duties would help local entrepreneurs to improve technology to face the global markets.

This statement is also true and provides a correct explanation for Assertion (A). When import duties on capital goods are reduced, it becomes easier and more affordable for local entrepreneurs to import advanced machinery and technology from global markets. Access to improved technology enables them to enhance their production processes, increase efficiency, and compete effectively in the global market. By importing advanced technology, local entrepreneurs can upgrade their equipment, adopt new production techniques, and improve the quality of their products or services. This, in turn, allows them to expand their businesses, attract foreign investment, and create employment opportunities.

In conclusion, both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A). Reducing import duties on capital goods is an important policy instrument of economic liberalization as it facilitates the acquisition of advanced technology by local entrepreneurs, enabling them to compete in the global market and drive economic growth.