Step 1: Recall what water storage efficiency and water application efficiency mean in irrigation engineering, since Statement I is about storage efficiency and Statement II is about application efficiency.
Step 2: Water storage efficiency compares the water actually stored in the crop root zone to the water needed there. It becomes especially important whenever the water supply itself is limited, or when the soil is slow to accept water so a long time is needed to push enough water into the root zone. This is exactly what Statement (I) says, so it is correct.
Step 3: Water application efficiency compares the water stored in the root zone to the total water actually applied at the field. If more water is applied than the root zone can hold during one irrigation, the extra water is lost to deep percolation below the roots or to runoff at the tail end of the field, so the useful fraction of the applied water drops. This means application efficiency falls as the applied depth grows larger, exactly as Statement (II) claims, so it is also correct.
Step 4: Because both statements match accepted irrigation efficiency theory, the correct choice is that both Statement (I) and Statement (II) are correct, which is option 1.