The correct option is 2 only
Explanation
The question addresses the economic phenomenon known as the Cotton Boom in India, which was directly influenced by the geopolitical disruptions caused by the American Civil War (1861-1865).
Statement 1 is Incorrect: Before 1861, the United States was the primary supplier of raw cotton to British textile manufacturers. The outbreak of the American Civil War disrupted these supplies significantly. In response, Britain turned to India as a crucial alternative source. By 1862, the volume of Indian cotton exports had surged, constituting over 90 % of the total cotton imports into Britain.
Statement 2 is Correct: The end of the American Civil War in 1865 marked the resumption of cotton production and exports from the United States. As American cotton re-entered the global market, the demand for Indian cotton declined sharply. Consequently, Indian exports dropped, and cotton prices crashed, leading to severe agrarian distress in regions like the Deccan (a precursor to the Deccan Riots of 1875).
Key Takeaway: The surge in Indian cotton exports was a temporary effect of the American Civil War. Its conclusion led to a collapse in demand for Indian cotton, not an increase.