The artificially fixed rupee-sterling exchange rate prescribed by the Hilton-Young Commission (1926) was adopted by the British Government for which one of the following reasons?
- Aiding the flow of remittances from India and maintaining India’s creditworthiness
- Providing support to Indian importers
- Encouraging the export of cotton produce from India
- Preventing depreciation of the Rupee in terms of gold
Explanation
Statement a) is the correct answer
- The Hilton-Young Commission recommended fixing the rupee-sterling exchange rate at 1s. 6d. (one rupee = 1 shilling and 6 pence). This was an artificially high (overvalued) rate compared to what many Indian nationalists and economists demanded (1s. 4d.). The British Government adopted this rate to facilitate the smooth and cheaper transfer of remittances from India to Britain. These included pensions of British officials, interest on public debt, military expenses, and dividends of British companies. A stronger rupee meant fewer rupees were needed to buy the required sterling for these remittances. It helped maintain India’s creditworthiness in the London money market, making it easier for the Government of India to raise loans in Britain.
Statement b) is incorrect
- An overvalued rupee made imported British goods cheaper for Indian buyers, benefiting British manufacturers and hurting Indian industries, which faced stiff competition from cheaper imports. Indian importers benefited, but this was not the main British motive.
Statement c) is incorrect
- The artificially fixed high exchange rate hurt Indian exports (including cotton).
Statement d) is incorrect
- The rate was fixed in relation to sterling, not primarily to prevent depreciation against gold.
- Note: This year marks the 100th anniversary of the landmark Hilton Young Commission report that paved the way for the Reserve Bank of India (RBI). This question again shows how UPSC links static history with contemporary relevance. The Hilton-Young Commission (1926) has recently been in the news because 2026 marks the 100th anniversary of its recommendations, which ultimately paved the way for the establishment of the Reserve Bank of India (RBI). Instead of asking directly about the RBI, UPSC framed a deeper conceptual question on the artificially fixed rupee-sterling exchange rate. Such questions test whether students understand the broader colonial economic objectives behind monetary policies, rather than just remembering the name of a commission. The lesson for aspirants is clear: whenever an important institution, committee, anniversary, or report appears in current affairs, study not only the direct facts but also its historical background, objectives, economic implications, and connected themes. UPSC often asks questions from these deeper linkages rather than from surface-level information alone.
