Step 1: Understand the question.
We must choose the sentence that correctly explains how NEP 2020 treats the Indian Knowledge System, called IKS.
Step 2: What is IKS.
IKS is the large body of knowledge built up in India over many centuries. It covers things like ancient mathematics, tribal wisdom, medicine, and arts.
Step 3: Recall the policy view.
NEP 2020 respects this old knowledge but still values modern science and critical thinking. The plan is to blend the two, not to replace one with the other.
Step 4: Reject the extreme options.
It does not throw out modern science for religious texts. It does not lock IKS only inside Sanskrit schools. It does not swap all modern training for Vedic apprenticeships. These are too narrow or too extreme.
Step 5: Match the balanced option.
Only one option says IKS is woven together with modern subjects, for example mixing tribal knowledge and ancient mathematics with today's lessons.
Step 6: Conclude.
So the right answer is option 2, integration of traditional Indian insights with modern subjects.
\[ \boxed{\text{Integrates traditional Indian insights with modern subjects}} \]