Correct Option (D)

All three assumptions are valid based on the provided passage.

Assumption 1: High risks involved in holding maximum water in reservoirs are due to our over-dependence on hydropower projects. The passage explicitly states that authorities store maximum water "only to ensure greater electricity generation and irrigation." This indicates a prioritization of hydropower and irrigation, which leads to the practice of maximizing reservoir levels, contrary to international norms that suggest maintaining lower levels to mitigate risks associated with excess rainfall. Thus, the over-dependence on hydropower is presented as a driving factor for this risky storage strategy.
Assumption 2: Storage capacity of dams should not be fully used before or during monsoon season. The passage mentions an "internationally accepted practice that the water level of a reservoir should be kept below a certain level before the onset of monsoon season." The rationale provided is "so that when monsoon rains come, there is space to store the excess rain water and also so that water can be released in a regulated manner." This directly supports the assumption that full storage capacity should not be utilized, particularly before or during the monsoon, to accommodate incoming rainfall and facilitate controlled release.
Assumption 3: Role of dams in flood control is underestimated in India. The passage contrasts India's practice of maximizing water storage for electricity and irrigation with the international practice of maintaining lower levels for storing excess rainwater and regulated release. The latter functions are critical for flood control. By prioritizing other uses over maintaining space for flood mitigation, the passage implies that the flood control aspect of dam management is given lesser importance or is underestimated in India's operational strategy.

Incorrect Options:

Since all three assumptions are valid based on the passage, options that exclude any of these assumptions are incorrect.

Option (A) 1 & 2 only is incorrect because assumption 3 is also valid.
Option (B) 2 only is incorrect because assumptions 1 and 3 are also valid.
Option (C) 3 only is incorrect because assumptions 1 and 2 are also valid.