The practice of colonialism and the principle of nationalism and democratic rights are considered contradictory because:

Colonial rule established political authority of a foreign power over a territory, while nationalism asserted the right of the people of that territory to determine their own political future.

The correct answer is Option 2: Colonial rule established political authority of a foreign power over a territory, while nationalism asserted the right of the people of that territory to determine their own political future.

Option 1: Colonialism restricted local economic development, whereas nationalism mainly focused on improving both local and national economy. — Incorrect. The contradiction between colonialism and nationalism was primarily political, not just economic. Nationalism focused on the right to self-rule and sovereignty, not merely economic improvement.

Option 2: Colonial rule established political authority of a foreign power over a territory, while nationalism asserted the right of the people of that territory to determine their own political future. — Correct. Colonialism involved foreign control over the political affairs of a society, whereas nationalism argued that people of a nation had an equal right to freedom and sovereign power.

Option 3: Colonialism encouraged democratic participation, while nationalism opposed the idea of sovereignty. — Incorrect. Colonial rule generally limited political participation of the colonised people, while nationalism was closely linked with ideas of sovereignty and democratic rights.

Option 4: Colonialism and nationalism both recognised the importance of political authority, but colonialism focused on economic control whereas nationalism focused on cultural identity. — Incorrect. Although colonialism involved economic exploitation and nationalism could involve cultural identity, the main difference was between foreign domination and the demand for self-rule.

NCERT: "Nation states are closely associated with the rise of nationalism. The principle of nationalism assumes that any set of people have a right to be free and exercise sovereign power. It is an important part of the rise of democratic ideas. ...that the practice of colonialism and the principle of nationalism and democratic rights are contradictory. For colonial rule implied foreign rule such as British rule over India. Nationalism implied that the people of India or of any colonised society have an equal right to be sovereign. Indian nationalist leaders were quick to grasp this irony. They declared that freedom or swaraj was their birthright and fought for both political and economic freedom".