Correct Answer:
D. Provincial autonomy
The Dyarchy system, introduced in British India primarily through the Government of India Act 1919, was fundamentally based on Provincial autonomy. This system aimed to introduce a measure of self-governance at the provincial level by dividing subjects into 'reserved' and 'transferred' lists. Reserved subjects remained under the control of British governors, while transferred subjects were administered by Indian ministers responsible to provincial legislatures, thus granting limited autonomy. It was not about centralization of power, martial law, or solely religious division, though communal representation was a feature of the reforms.