Official Question UPSC 2026
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 ?
Solution & Analysis
Answer: A
Let us analyze the macroeconomic mechanics of colonial India's "Ratio Controversy" following the Hilton-Young Commission (1926):
•The Policy: The Commission recommended fixing the rupee-sterling exchange rate at an artificially overvalued ratio of 1s 6d (1 shilling 6 pence) per rupee, rather than returning to the pre-war rate of 1s 4d.
•The Motive (Option A): The colonial administration's primary fiscal headache was "Home Charges." These were mandatory, massive sterling-denominated remittances sent to London annually to pay for British administrative costs, military pensions, and interest on public debt. By keeping the rupee artificially "strong" against the sterling, the government needed to collect fewer rupees from Indian taxpayers to buy the required sterling. This eased their budget deficit, ensured the steady flow of wealth to Britain, and maintained India's sovereign creditworthiness in London markets.
•The Collateral Damage: While this policy incidentally made British imports cheaper (Option B), its primary goal was government debt management. In fact, the overvalued rupee disastrously harmed Indian exports (making Option C completely incorrect), as Indian goods became too expensive on the global market, triggering massive protests from Indian industrialists.
Conclusion: The primary driver of the policy was aiding the remittance of Home Charges, making Option A correct.