The 'ratio controversy' of the 1920s showed how colonial monetary policy and Indian economic nationalism collided. Discuss.

The "ratio controversy" was the 1920s dispute over the rupee–sterling exchange rate. The Hilton Young Commission (1926) adopted 1s 6d per rupee, but Indian opinion demanded 1s 4d [2][5]. A technical-looking number turned into a contest over whose interests Indian money would serve.

Colonial monetary policy: a dear rupee

• Habit of overvaluation: the Government's efforts to hold the rupee at a high exchange rate had already drawn heavy public criticism [4].
• Legislature sidelined: in 1924 the rupee stood near 1s 4d. The Finance Member opposed an Assembly proposal to stabilise the ratio at that level and offered a commission instead [4].
• The 1926 package: the Commission adopted 1s 6d together with a gold standard and a new central bank, the "Reserve Bank of India" [1][2].

Indian economic nationalism: the 1s 4d demand

• Dissent from within: Purshotamdas Thakurdas, himself a Commission member, wrote a minute of dissent. He also wanted the central bank to grow out of the Imperial Bank [4].
• Public mobilisation: the Indian Currency League met at Poona on 12 October 1926 under N.C. Kelkar. Thakurdas, Victor Sassoon and economist V.G. Kale spoke there [5].
• Capital meets politics: Bombay mill-owners and merchants joined Tilakite leaders. This showed Indian business entering the national movement [5].

Where the two collided

• Trade: £1 of exports fetched about 13⅓ rupees at 1s 6d against 15 at 1s 4d. That was a ~12.5% loss for exporters, and British imports became cheaper [5].
• Agrarian: crop prices fell in rupee terms, but land revenue and debts stayed fixed.
• Drain: a dear rupee lowered the rupee cost of sterling payments to Britain, echoing Naoroji's drain critique.
• Institutional: the ratio returned in the Reserve Bank Bill debates through an amendment seeking 1s 4d. Dissenters also tied the bank to constitutional reform, so it came only with the RBI Act, 1934 [3][1].
• Caveat: 1s 4d would also have shifted income by making imports dearer for consumers. The League's demand was not class-neutral.

The controversy therefore joined monetary technicalities to the wider question of sovereignty over money. Its lasting lesson is that exchange-rate and central-banking choices must serve domestic producers and citizens. An autonomous RBI and a market-determined rupee now try to strike that balance.