Statement I: The private trade of the East India Company’s officials in the 18 century had flowered with the indirect patronage of the authorities of the Company. Statement II : The extra-legal power enjoyed by the foreign merchants and the duty-free nature of their private trade virtually edged the indigenous merchants out of competition.

Statement I is true as the private trade of East India Company (EIC) officials flourished during the 18th century with the indirect patronage of the Company's authorities. While the EIC held a monopoly on trade between Europe and Asia, it allowed its servants to engage in 'country trade' (intra-Asian trade) to supplement their low salaries, often relying on connections with influential figures in London [t1, t2]. Statement II is also true and provides the correct explanation for Statement I. EIC officials misused the 'dastaks' (trade permits) intended for the Company's goods to exempt their private trade from duties [c2]. This extra-legal power and duty-free status created an uneven playing field, as indigenous merchants were still required to pay transit dues and tolls [c2, c3]. Consequently, local merchants faced unequal competition and were virtually edged out of the market by the privileged private trade of foreign officials [c2, c5].

Sources

1. [1] https://warwick.ac.uk/fac/arts/history/ghcc/eac/events/upcoming_events/goodsfromtheeast/programme/davies_private_trade.pdf
2. [2] Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 5: Expansion and Consolidation of British Power in India > The Battle of Buxar > p. 91
3. [3] Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 3: Advent of the Europeans in India > Farrukhsiyar's Farmans > p. 41
4. [4] Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 28: Economic Impact of British Rule in India > First Stage > p. 553