Option 1 states that both statements are individually true and that Statement II is the correct explanation of Statement I. Let`s dissect each statement to verify their accuracy and their relationship with each other.

Statement I claims that the private trade of the East India Company`s officials in the 18th century flourished with the indirect patronage of the Company authorities. This implies that these officials engaged in trade privately, and this trade was supported or encouraged by the Company authorities. The statement is generally true because there is historical evidence that suggests the private trade of East India Company officials indeed prospered with the Company`s indirect support.

Statement II asserts that the extra-legal power enjoyed by foreign merchants and the duty-free nature of their private trade effectively marginalized indigenous merchants from competition. This means that the foreign merchants had an advantage in terms of power and trade policies, making it difficult for indigenous merchants to compete with them. This statement is also true based on historical evidence that highlights the unequal playing field between foreign and indigenous merchants during this period.

By examining both statements, we can conclude that they are individually true. Furthermore, Statement II aptly explains Statement I. The indirect patronage of the Company authorities, as mentioned in Statement I, can be understood as the extra-legal power and duty-free privileges enjoyed