✅ UPSC CSE 2026 | Modern History – Colonial Economic Policy

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

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✅ Correct Answer: (a)

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Detailed Explanation

The Hilton-Young Commission (officially the Royal Commission on Indian Currency and Finance, 1926) was appointed to examine India’s currency and exchange system.

It recommended fixing the rupee-sterling exchange rate at 1 shilling and 6 pence (1s. 6d.) per rupee. This rate was artificially high (i.e., the rupee was overvalued).

Why did the British adopt this rate?

Primary Reason (Option a):

• The overvalued rupee made it easier and cheaper for the British to transfer funds from India to Britain.
• It facilitated the smooth flow of remittances, home charges, pensions, and profits (the infamous Drain of Wealth).
• It helped maintain India’s creditworthiness in international financial markets, which was important for the British to raise loans and sustain colonial financial operations.

This was a classic example of British economic imperialism — policies designed to benefit the colonial power at the cost of the colony.

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Impact of the Artificially High Exchange Rate (1s. 6d.)

Impact on	Effect	Who Benefited?
Indian Exports	Became more expensive	Britain
Indian Imports	Became cheaper	British exporters
Indian Industry	Severely hit (especially cotton textiles)	British industry
Indian Peasants	Faced distress due to falling export prices	–
British Remittances	Became easier and more profitable	British Government

This policy was one of the major causes of agrarian distress and de-industrialization in India during the 1920s–30s.

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Quick Revision: Hilton-Young Commission (1926)

Aspect	Details
Full Name	Royal Commission on Indian Currency and Finance
Year	1926
Chairman	E. Hilton Young
Key Recommendation	Fixed rupee-sterling rate at 1s. 6d.
Nature of Rate	Artificially high (overvalued rupee)
Main Purpose (British view)	Facilitate remittances & maintain creditworthiness
Impact on India	Hurt exports, industry, and peasants

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UPSC Strategy & Common Traps

• Option (a) is correct because it directly reflects the British colonial interest — easy transfer of wealth and financial stability from Britain’s perspective.
• Option (d) is a trap. The high exchange rate did not prevent depreciation in terms of gold; rather, it was fixed when sterling itself was returning to the gold standard.
• Option (c) is wrong because the high rate actually discouraged Indian exports (including cotton).

Pro Tip:
Whenever you see questions on colonial currency policy (1893, 1926, etc.), remember:

British interest = Drain of wealth + Control over Indian economy

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Why This Question Matters for UPSC CSE 2026

• Tests understanding of colonial economic exploitation through currency policy.
• Important for Modern History + Economic History of India.
• Frequently asked in Prelims (statement-based or reason-based questions on colonial policies).
• Helps in Mains answers on Drain of Wealth and impact of British policies on Indian economy.

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CrackTarget One-Line Revision:

“Hilton-Young Commission (1926) fixed rupee at 1s. 6d. to make remittances to Britain easier and maintain India’s creditworthiness from the British viewpoint.”

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