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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?
Explanation
The correct answer is Option A.
The Hilton-Young Commission (1926), officially known as the Royal Commission on Indian Currency and Finance, recommended fixing the rupee-sterling exchange rate at an artificially higher rate of 1s 6d (one shilling and six pence) instead of the pre-war rate of 1s 4d.
Indian nationalists and industrialists fiercely opposed this higher exchange rate because an overvalued rupee made Indian exports more expensive in the global market and made British imports cheaper, thus harming domestic industries and agriculture.
However, the British Government adopted the 1s 6d rate primarily to reduce the fiscal burden of "Home Charges"—the fixed sterling obligations and remittances sent from India to Britain to cover administrative costs, debt interest, military expenses, and pensions. A stronger rupee meant that fewer rupees were required from the Indian revenue to meet these sterling obligations. This artificially fixed rate effectively aided the flow of remittances to Britain, helped balance the colonial budget, and maintained India's creditworthiness in the London financial market.
PROVENANCE & STUDY PATTERN
Guest previewThis is a classic bouncer from deep colonial economic history. While standard economy books mention the Hilton-Young Commission as the genesis of the RBI, the macroeconomic rationale behind the controversial 1s. 6d. exchange rate is usually found in specialized history texts like Sumit Sarkar. It tests your ability to apply macroeconomic concepts (currency overvaluation) to historical colonial motives.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- The Hilton-Young Commission (Royal Commission on Indian Currency and Finance) was appointed in 1925 and submitted its report in 1926.
- The commission recommended a gold bullion standard and a specific exchange rate for the rupee.
- The recommended rate was 1s. 6d. (one shilling and six pence) per rupee, which was a point of significant political and economic debate.
- Confirms the Hilton-Young Commission's role in recommending the creation of the Reserve Bank of India.
- Discusses the controversy surrounding the 1s. 6d. ratio recommended by the commission.
- Notes that the commission's report in 1926 advocated for this specific exchange rate to stabilize the currency.
- Provides historical context on the transition from the 1s. 4d. rate to the 1s. 6d. rate.
- Details the commission's recommendation for a gold bullion standard at the 1s. 6d. ratio.
- Explains that the Currency Act of 1927 subsequently codified this recommendation into law.
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