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?
Answer & explanation
Answer: (a) Aiding the flow of remittances from India and maintaining India's creditworthiness
The Commission fixed the rupee at 1s. 6d., above the pre-war 1s. 4d. The Government of India had to pay large sterling sums in London every year (the Home Charges: interest on debt, pensions, stores), and a dearer rupee meant fewer rupees for each pound remitted while keeping India's sterling credit sound.
- ✓ (a) A high rupee-sterling rate cut the rupee cost of the Home Charges and other remittances to Britain, and a firmly held rate reassured holders of India's sterling debt. The Currency Act of 1927 put 1s. 6d. into law.
- ✗ (b) Cheaper imports were a side-effect that mainly helped British goods; Indian business and later the Congress attacked the ratio for giving imports an unfair edge.
- ✗ (c) An over-valued rupee makes Indian goods dearer abroad, so it discouraged exports such as raw cotton rather than encouraging them.
Remember · Hilton-Young Commission (1926): rupee at 1s. 6d. (Currency Act 1927) to ease sterling Home Charges; also recommended a central bank, leading to the RBI in 1935.
Sources
- Reserve Bank of India, History of the Reserve Bank of India, Vol. 1 (1935–51), Ch 2 ↗ “With regard to the parity of the rupee, the Commission recommended 1S. 6d., to which rate, in its view, prices in India had adjusted substantially vis-a-vis the world at large. … The view was that the high exchange rate of the war time had mitigated a rise in Indian prices and had resulted in substantial saving in Home Charges in terms of rupees.”
Question and answer: UPSC's provisional GS Paper I (2026, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·