The artificially fixed rupee-sterling exchange rate prescribed by the Hilton-Young Commission (1926) was adopted by the British G…

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?

1. A. Aiding the flow of remittances from India and maintaining India's creditworthiness (Correct answer)
2. B. Providing support to Indian importers
3. C. Encouraging export of cotton produce from India
4. D. Preventing depreciation of the Rupee in terms of gold

Correct Answer

Option A — A

Detailed Solution & Explanation

The correct answer is Option A.

Key Points

• aiding the flow of remittances from India and maintaining India's creditworthiness.
• Explanation: The Hilton-Young Commission, formally the Royal Commission on Indian Currency and Finance (1926), recommended fixing the rupee at 1 shilling 6 pence — a rate widely regarded as artificially high.
• An overvalued rupee meant fewer rupees were needed to remit any given sterling sum to Britain, which eased the transfer of the Home Charges and other remittances out of India and helped sustain India's ability to service its sterling obligations, that is, its creditworthiness.
• Why the other options are wrong: The rate was not designed to help Indian importers, even if an overvalued rupee incidentally made imports cheaper.
• It discouraged rather than encouraged exports such as cotton, since Indian goods became costlier abroad.
• Preventing depreciation against gold was not the governing motive.

Additional Information

• Indian business opinion and nationalist leaders opposed the 1s 6d ratio, arguing a lower rate would have protected Indian exports and industry.
• The same Commission recommended a central bank, which led to the establishment of the Reserve Bank of India in 1935.