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UPSC Prelims 2026 GS Paper 1, question 2

Topic: Modern history and freedom struggle

Q2

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 creditworthinessCorrect 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

Solution.

Answer: (a) Aiding the flow of remittances from India and maintaining India's creditworthiness

  1. The Hilton-Young Commission (Royal Commission on Indian Currency and Finance, 1926) recommended fixing the rupee at 1 shilling 6 pence (1s 6d) rather than the pre-war 1s 4d demanded by Indian nationalists.
  2. An overvalued rupee reduced the rupee cost of remitting 'Home Charges' and sterling debt obligations to London while maintaining British India's creditworthiness and facilitating British imports into India.

Trap: An overvalued exchange rate (1s 6d instead of 1s 4d) hurt Indian exporters such as cotton producers and favoured British exporters to India.