Question
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?
A
Aiding the flow of remittances from India and maintaining India’s creditworthiness
B
Providing support to Indian importers
C
Encouraging export of cotton produce from India
D
Preventing depreciation of the Rupee in terms of gold
Simple Explanation — Understand in 2 Minutes
What was the Hilton-Young Commission?
It was the Royal Commission on Indian Currency and Finance, set up in 1925 and reporting in 1926. Its job was to decide what the rupee should be worth against the British pound (sterling).
What did it recommend?
It fixed the rupee at 1 shilling 6 pence (1s 6d) per rupee — artificially higher than the pre-war natural rate of 1s 4d. This made the rupee overvalued on purpose.
Why did Britain want an overvalued rupee?
Britain drained huge money from India every year — called Home Charges. These included salaries of British officers, pensions, military costs, and interest on loans — all paid in sterling (British pounds).
The simple maths
A stronger rupee = fewer rupees needed to buy each pound. So Britain could extract the same sterling by collecting fewer rupees from Indian taxpayers — reducing colonial budget pressure.
The creditworthiness angle
India had borrowed heavily in London. A stable, strong rupee ensured India could service its sterling debt comfortably — maintaining India’s creditworthiness in London’s financial markets for British investors.
What Were “Home Charges”? — The Real Motive
🔴 Home Charges — India’s Forced Remittances to Britain
British Officials’ Salaries & Pensions
ICS officers, military personnel, railway staff — paid from India’s treasury, remitted to Britain in sterling every year.
Interest on Public Debt
India borrowed from London to fund railways, famines and wars. Interest sent to British bondholders annually.
Military Expenses
Cost of British troops in India and wars fought on Britain’s behalf — all charged to India’s budget.
India Office Administration
Costs of running the India Office in London — offices, stores, procurement — billed to Indian revenues.
The Exchange Rate — Before vs After
Pre-War Natural Rate
1s 4d
1 shilling 4 pence per rupee
Favoured Indian exporters
Favoured Indian exporters
→
Hilton-Young Rate (1926) ✓
1s 6d
1 shilling 6 pence per rupee
Artificially overvalued
Artificially overvalued
Rupee fixed higher than natural value — fewer rupees needed to send sterling to Britain.
Indian exporters and farmers suffered because their goods became expensive abroad.
Hilton-Young Commission — Key Facts
| Official Name | Royal Commission on Indian Currency and Finance |
| Chair | Sir Edward Hilton-Young (later Lord Kennet) |
| Appointed | August 1925 · Report submitted July 1926 |
| Exchange Rate Fixed | 1 Shilling 6 Pence (1s 6d) per Rupee |
| Previous Rate | 1 Shilling 4 Pence (1s 4d) — the pre-war natural rate |
| Primary Reason | Ease Home Charges payments & maintain creditworthiness in London |
| Standard Recommended | Gold Bullion Standard |
| Most Important Outcome | Recommended a Central Bank → Led to RBI (established 1935) |
| Indian Dissenter | Purshotamdas Thakurdas — argued for 1s 4d to protect Indian producers |
| Nationalist Criticism | Called economic exploitation — Drain of Wealth (R.C. Dutt, Dadabhai Naoroji) |
Why the Other Options Are Wrong
Option B
Supporting Indian importers
While an overvalued rupee did make imports cheaper — benefiting British manufacturers like Lancashire — this was a side effect, not the primary motive. Britain’s real goal was managing its Home Charges burden.
Side effect only — not the motive
Option C
Encouraging cotton exports
This is the exact opposite of what happened. A strong rupee made Indian goods expensive abroad, severely hurting cotton exports. Indian farmers and industrialists protested this bitterly.
Actually harmed Indian exports
Option D
Preventing gold depreciation
The Commission did recommend a Gold Bullion Standard, but that is a separate recommendation. The specific choice of 1s 6d over 1s 4d was driven by the Home Charges motive — not gold stability alone.
Separate recommendation — not the reason
Memory Trick — Never Forget This
🧠 Remember It This Way
HILTON-YOUNG = HOME CHARGES — The entire point of fixing the rupee higher was to make it cheaper (in rupee terms) to send money to Britain.
Strong rupee → Fewer rupees to buy pounds → Less drain on Indian budget → Britain wins, India loses.
Rate went 1s 4d → 1s 6d (went UP = rupee overvalued). Higher rate = stronger rupee = easier remittances for Britain.
Bonus fact for Mains: Same Commission recommended a Central Bank for India → became RBI in 1935.
Verified Source References
Primary Source
R.C. Dutt — Economic History of India
Volume II · Drain of Wealth analysis · Home Charges documentation · Colonial currency policy critique
UPSC Standard
Bipan Chandra — India’s Struggle for Independence
Chapter on Economic Nationalism · Home Charges and rupee-sterling exploitation
Academic Reference
B.R. Tomlinson — The Economy of Modern India
Cambridge Economic History · Hilton-Young Commission analysis · Sterling exchange policy
Parliament Record
Hansard — 18 November 1926
UK Parliament debate on Indian Currency and Finance · Official acceptance of Hilton-Young recommendations
