Explanation:

The correct answer is option 'D' - Indian.

Context:

The given sentence states that "They are proud to be Indian". It implies that a particular group of people, referred to as "they," possess a sense of pride regarding their nationality or identity as Indians.

Analysis:

Let's break down the sentence to understand the role of each word in it:

1. They: This is a pronoun used to refer to more than one person. It indicates that there is a group of individuals being discussed.

2. Are: This is the linking verb 'to be' in the present tense. It connects the subject 'they' to the complement in the sentence.

3. Proud: This is an adjective that describes the feeling or state of the subject. In this case, it describes the emotional state of the group of people referred to as 'they.'

4. To be: This is an infinitive phrase that functions as an adverbial phrase in the sentence. It provides additional information about the action or feeling expressed by the subject 'they.'

5. Indian: This is a noun and an adjective that refers to the nationality or identity of the subject 'they.' It specifies that the group of people being discussed is of Indian origin.

Inference:

From the analysis, it can be inferred that the subject 'they' is proud of their Indian identity. The word 'Indian' is the key term that represents their nationality or belongingness to India. Therefore, option 'D' - Indian is the correct answer as it captures the essence of the sentence and its meaning.