The correct answer is: Only argument I is strong.
Argument I is strong because it is based on the fact that India needs to earn foreign exchange to pay for its imports. This is a valid reason for encouraging exports, even if there are shortages of some goods in the domestic market.
Argument II is weak because it is based on the assumption that even selective encouragement of exports would lead to shortages. This is not necessarily true. For example, the government could encourage exports of goods that are not in short supply in the domestic market.
In conclusion, only argument I is strong.