Official UPSC Format

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 ?

⚡ Quick Recall Snippet

In 1926, the Hilton-Young Commission artificially fixed the rupee-sterling exchange rate at an overvalued 1s 6d. The British Government adopted this to ease the massive financial burden of 'Home Charges'—mandatory remittances sent from India to London to cover colonial administrative and military debts, thereby maintaining India's creditworthiness in Britain.

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Detailed Solution & Authority Citations

Correct Answer is Option 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.

    🚨 The Examiner's Trap

    The examiner uses standard macroeconomic outcomes as distractors. Options B and C describe what an exchange rate could do. While the overvalued rate did technically make British imports cheaper (Option B), the primary governmental reason for the policy was sovereign debt management (Home Charges), not commercial importer support.

    Active Recall Flashcard

    Tap to Flip

    What was the primary fiscal motive for the British Government to adopt the artificially high rupee-sterling exchange rate (1s 6d) recommended by the Hilton-Young Commission in 1926?

    To aid the flow of remittances ('Home Charges') from India to Britain and manage colonial debt.

    Concept Flow Mapping

    Hilton-Young Commission
    Fixed
    Rupee-Sterling Rate
    Overvalued Rupee
    Aided
    Remittance of Home Charges
    Overvalued Rupee
    Harmed
    Indian Exports

    Logic Quest

    "Why did Indian nationalists fiercely oppose the 1s 6d exchange rate?"

    Not analyzing core concepts like Colonial Macroeconomic Exploitation through the lens of Previous Year Questions is a serious miss-out. This PYQ engine is specifically designed to help you decode the examiner's mindset and master highly probable Modern History questions for your upcoming Prelims.