Choose the most appropriate meaning of the underlined idiomatic expression in the given sentence.
In the mad rush for Western modernity and technological skills, both traditional communities and the urban middle class are busy throwing out the baby with the bathwater.

Option C: Correct.

To answer the question we have to try making literal sense of the idiom used first and then understand its metaphorical sense through that.

To throw baby out with the bathwater, literally presents a picture of a baby being bathed and along with discarding the bathwater the baby is discarded in the process. 

This implies- while discarding something unimportant, something important is being discarded as well.

The option that fits this explanation is option C.