Drain of Wealth: The Start of Economic Downfall of India


Meaning of the Drain:

A great controversy arose over the question of ‘The Drain’ between the nationalist leaders of India and the Protagonists of Britain during the last quarter of the 19th century. While analyzing the main cause of poverty in India many nationalist thinkers developed the theory of Drain.

“A significant portion of India’s national wealth was transferred to England without any quid pro quo.” which was the main agreement that was advanced at that time and according to the experts this was described as ‘Drain’. 

The Drain was on India’s resources because the transfer of resources from India to England either by getting nothing reciprocally or getting only disproportionately a smaller a part of such transfer of resources.

In the year 1871 Dadabhai Naoroji in his book “Poverty and Un-British Rule in India” was the first person who raised this issue of drain of resources from India to England. 

In order to measure the extent of such drain and to find the consequences of such drain Dadabhai Naoroji tried to explain the causes of drain in his book.

Causes of the Drain:

Dadabhai Naoroji in his book observed that the subsequent factors were liable for the economic drain from India:

I. European employees’ remittances to England for supporting their families and education of their children—which could also be considered a feature of colonial system of state.

2. The employees of the East India Company remittances their savings as they preferred to invest at home.

3. Remittances for purchasing British goods demanded by British employees also as purchasing British goods in India.

4. Stores manufactured in Great Britain getting purchased by Government.

5. Interest charges on debt held in Britain.

The Government of India had to make huge payments to the people of England as a result of political, administrative and commercial connections established between India and England. All these payments were taken in the name of ‘Home Charges’.

Home charges were consisting of annuities on account of railways and irrigation works and payments to British employees, interest on public debt raised from England, employed in India as well as pensions to retired employees worked in India.

35 million pounds annually was the amount of home charges estimated by Versa Anstey a well known economist.

Estimate of the Drain:

To make a correct estimate of the extent of drain from India in the form of resources and gold bullion flowed from India to Great Britain, during the British rule was impossible, however some estimates were made on the extent of such drain.

Verelst estimated that the total volume of drain from India in terms of goods and bullion was 4, 94, 16, 11 pounds sterling during the period of five years just after Battle of Plassey. 

S.B. Saul also made an estimate and his figure for the year 1880 alone amounted to 4.14 per cent of India’s national income.

Dadabhai Naoroji also made an estimate of drain which was around Rs 8 million. Later on, Naoroji made another estimate of drain for the ten year period of 1883-92 and found the total drain at Rs 359 crore. In 1905, total amount of drain calculated by Naoroji was Rs 51.5 crore.

Consequence of the Drain:

There was a serious impact on the economy of India and a favorable effect on the economy of England due to the huge amount of drain of resources and bullions from India to England. 

Various Indian economists like Dadabhai Naoroji, M.G. Ranade, R.C. Dutta, G.K. Gokhale, G.V. Joshi and others studied about the consequences of drain and emphasized in detail the extremely deleterious effects of the Drain.

M.G. Ranade observed, “…………of the national income of India, more than one third was taken away by the British in some form or the other.”, while criticizing the drain of resources and capital from India to England.

Effects of the Drain on England:

A better standard of living in Great Britain was resulted in by the huge volume of drain of resources and capital from India to England. After 1750 a huge volume of drain of resources and capital from India to England started investing in England agriculture and industry. 

The 18th Century and also for Industrial Revolution in England after 1750 were partially helped by these investments, it was also helped agriculture revolution in England.

The resources drained out of India helped England to attain the take-off stage of its growth. The foundation of economic prosperity in England was accelerated by the drain of resources.

Effects of the Drain on India:

Huge drain of resources from India into England had resulted disastrous effects on Indian economy and its people. Huge amount of those resources which might be invested in India were snatched and siphoned off to England.

Huge debt undertaken by the government and its payment of interest necessitated increasing tax burden on the people of India, which were highly regressive in nature. 

As per Dadabhai Naoroji’s estimates, tax burden in India during 1886 was 14.3 per cent of its total income which was very high as compared to six .93 per cent in England.

Moreover, these tax proceeds were mostly used for creating payments to British creditors and not for the social services and welfare activities of Indians. 

This type of drain of tax proceeds from India impoverished the agriculture, industry and trading activities in India and was largely liable for stagnant stage of its economy during the 18th and 19th centuries.

Although British undertook responsibility of maintaining law and order, centralized political and judicial administration, roads, railways, educational found out etc. but the extent of draining out of resources was too excessive resulting in stagnation of the economy and poor and miserable condition of Indian masses.

R.C. Dutta had also tried to determine a causal relationship between the drain of resources and therefore the improvement of the peasantry. He argued that the drain was paid mainly out of land revenue realized from the peasants.

Methods of Reducing the Drain:

Nationalist leaders mentioned several measures in order to reduce the burden of the Drain. 

The Indianisation of the civil and military services was the first measure suggested by them which would thereby help reducing the number of British personnel and increase the number of Indian personnel to a reasonable proportion.

The reduction of Home Charges realized from India and bearing major parts such home charges by England was the Second method suggested by them.

The burden of drain was to purchase government stores in India and also by checking increasing import of private foreign capital was their third suggestion.

Thus, this huge economic drain of resources from India put a significant hurdle within the path of capital formation in India. 

Moreover, British brought back the drained out capital to India and gradually found out various industrial concerns in India owned and managed by British industrialists.

With the active patronage of British government, British could secure nearly a monopoly position within the area of trade and principal industries.

As a result, British industries established in India drained out further resources within the sort of regular remittances of interests and take advantage of India into Britain. 

Thus such an outsized size of economic drain created a significant hurdle within the path of economic development of India till 1947 and was also largely liable for growing poverty in the country.

Written by: Gourav Chowdhury