There are two circles in this diagram. The grey circle and the outer circle.
In order to get the diameter of the grey circle, we need to subtract 2mm (2 x 1mm) from 1.6 cm.
Diameter of grey circle = 1.6 – 0.2mm = 1.4cm
Radius = 0.7cm = 7mm
Area of a circle = πr²
Area of internal cross sectional area (grey circle) = π(7)² = 49π mm²