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The correct answer is option 3: Both 1 and 2.
Option 1 is correct because funds for town improvement in British India were indeed raised through public lotteries. This was one of the ways in which the colonial government obtained funds for infrastructure development.
Option 2 is also correct because the threats of epidemics played a significant role in the impetus for town planning in the early 19th century. British officials were concerned about the spread of diseases such as cholera and sought to implement measures to improve public health and sanitation in towns and cities.
Therefore, both statements are accurate in relation to town planning in British India in the early 19th century. The colonial government raised funds through public lotteries, and the threats of epidemics provided a strong motivation for town planning.