Step 1: Understanding the context.
The Academy Award (Oscar) is one of the most prestigious film awards in the world. Several Indians have been nominated and won Oscars over the years. Bhanu Athaiya was the first Indian to win an Academy Award for Best Costume Design for the film *Gandhi* (1982).
Step 2: Analyzing the options.
(A) Bhanu Athaiya: This is correct. She won the Oscar in 1982 for her work in the film *Gandhi*.
(B) A. R. Rahman: While A. R. Rahman won two Oscars for his music in *Slumdog Millionaire*, he was not the first Indian to win an Oscar.
(C) Satyajit Ray: Although Satyajit Ray was awarded an honorary Oscar in 1992, he was not the first to win a competitive Oscar.
(D) M. Night Shyamalan: He is not Indian by the Oscars' criteria as his win is not related to India’s Oscar history.
Step 3: Conclusion.
The correct answer is (A) because Bhanu Athaiya was the first Indian to win an Academy Award.