UPSC Prelims 2026 Q2: Hilton-Young Commission Rupee Ratio — Explained
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?
- Aiding the flow of remittances from India and maintaining India's creditworthiness
- Providing support to Indian importers
- Encouraging export of cotton produce from India
- Preventing depreciation of the Rupee in terms of gold
Answer: (a) Aiding the flow of remittances from India and maintaining India's creditworthiness
Statement-wise explanation
- a: correct — The commission fixed the rupee at 1 shilling 6 pence, not the 1s 4d that Indian business wanted. The Currency Act of 1927 then made this rate law. A dearer rupee meant the Government of India needed fewer rupees to buy each pound sterling. At 1s 6d a pound cost about 13.33 rupees; at 1s 4d it would have cost 15. That made the Home Charges cheaper to pay: the yearly remittances to Britain for interest, pensions and the India Office. It also helped India keep paying its sterling debt on time, which kept its credit good in the London market.
- b: incorrect — An overvalued rupee did make imports cheaper. But the intended gainers were British manufacturers selling into India, not Indian importers. Indian commercial bodies, led by Purshotamdas Thakurdas, opposed the 1s 6d rate. Helping Indian traders was not why London adopted it.
- c: incorrect — This states the opposite of what happened. A higher rupee made Indian raw cotton and other produce dearer for foreign buyers, so it discouraged exports. Exporters and growers were among those who suffered most from the 1s 6d rate.
- d: incorrect — The issue in 1926–27 was not a falling rupee. The argument was over how high to fix it: 1s 6d or the older 1s 4d. The commission's gold bullion standard tied the rupee to gold in any case. The 1s 6d choice was a deliberate overvaluation that served sterling payments, not a defence against the rupee losing value against gold.
How to eliminate
First ask who benefits from a strong rupee. A higher rupee hurts exports, so 'encouraging export of cotton' fails on basic economics. The British Government made colonial money policy to protect British interests. So 'support to Indian importers' is unlikely to be its stated reason, and Indian business in fact opposed the rate. The rupee was being pushed up, not falling, so 'preventing depreciation' does not fit. The one option that serves the British Treasury and British investors is the one about remittances and creditworthiness. Fact to remember: Hilton-Young set 1s 6d (vs 1s 4d), which made Home Charges cheaper and drew nationalist protest.
Know more
Royal Commission on Indian Currency and Finance (Hilton-Young Commission)
- Appointed in August 1925, chaired by Edward Hilton Young. It reported in 1926.
- Its brief was to review India's exchange and currency system and suggest changes in India's interest.
Main recommendations
| Recommendation | What followed |
|---|---|
| Rupee fixed at 1s 6d sterling | Currency Act, 1927 |
| Gold bullion standard: no gold coins in circulation, gold bars sold for reserve and payment purposes | Adopted from 1927, dropped in 1931 when Britain left gold |
| Merge the paper currency reserve and the gold standard reserve | Later handed to the central bank |
| A central bank, the Reserve Bank of India, separate from government | Bill introduced 25 Jan 1927 and lapsed; RBI Act, 1934; RBI opened 1 April 1935 |
The ratio controversy
- After the First World War the government tried to hold the rupee at 2s, and failed. By 1924 the rupee stood near 1s 4d.
- Indian business wanted 1s 4d fixed by law. Purshotamdas Thakurdas, a member of the commission, wrote a minute of dissent.
- The 1s 6d rate cut the rupee cost of the Home Charges and of India's sterling debt. It also made British goods cheaper in India.
- Its cost fell on Indian exporters, farmers and new industries.
- Nationalists treated it as another case of the drain of wealth.
Ambedkar's link: B.R. Ambedkar gave evidence to the commission. His ideas, set out in The Problem of the Rupee (1923), helped shape thinking on the central bank.
In the news
The commission reported in 1926, so 2026 marks its centenary. Monetary history from the 1920s is a regular theme in UPSC's Modern History questions. This question is essentially static.
NCERT Concepts to Revise
- Home charges: The question turns on Home Charges, the yearly sterling remittances to Britain for interest, pensions and India Office costs, and how the 1s 6d rate changed their rupee cost.
- Drain of wealth: Home Charges were central to the drain-of-wealth critique, which helps explain why Indian business opposed a rate set to ease payments flowing to Britain.
- Central bank: The Hilton-Young Commission also recommended a central bank, later the Reserve Bank of India, to manage currency and exchange, which places the 1926 rate in context.
- Export surplus: India paid its sterling obligations out of an export surplus, so how a dearer rupee affected cotton and other exports matters when weighing the options.