Drain of Wealth in British India

Drain of wealth means a part of India’s national wealth was being exported to England for which India got no adequate economic or material returns. For many nationalist scholars, it was the root cause of poverty in India. The issue was raised for the first time in the second half of 19th century and brought the nationalist leaders on one platform.

Dada Bhai Naoroji, the grand old man of India, was the first person who exposed the true nature of British rule in India through his paper ‘English Debt to India’ which he read before a meeting of the East India Association on May 2, 1867, in London. He wrote that “out of the revenues raised in India nearly one-fourth goes clean out of the country, and is added to the resources of England”. He presented some more papers on the same subject as ‘The Wants and Means of India‘ (1870) and ‘On the Commerce of India‘ (1871) at London. But the book which drew attention of both the Indians and the world, especially the English, was “Poverty and un-British rule in India“. He called the British rule as plundering, unrighteous, despotic, destructive and un-British. He highlighted that it is a myth that British rule brought any benefit to India, yes it made India bleed.

Dada Bhai Naoroji was not the only Indian who blew the whistle. Justice Govind Ranade, a renowned nationalist and social reformer, delivered in 1872 a lecture at Pune and observed “that of the national income of India more than one-third was taken away by the British in some form or other”. Another prominent nationalist leader Ramesh Chandra Dutt in his book The Economic History of India pronounced that one-half of the net revenue “flows annually out of India” and continued painfully “verily the moisture of India blesses and fertilises other lands”.

The other nationalist leaders who expressed their concern through various papers on this drain of wealth were Gopal Krishna Gokhle, P.C. Ray, G.V. Joshi, M.M Malaviya, D.E. Wacha, G. Subramaniya Iyer, Surendranath Banerji, and Bholanath Chandra. Many nationalist newspapers also condemned the drain of wealth from India, notably among them was the Amrit Bazaar Patrika. It is a great irony that the Indian National Congress officially adopted ‘the drain theory‘ only in 1896 at its Calcutta session. It is not a surprise that President of Congress was Dada Bhai Naoroji.

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One may wonder what is the difference between the invasion of the likes of Alexander, Mahmud of Ghazni, Shihabuddin Ghori, Timur, Nadir Shah, and Ahmadshah Abdali on the one hand and the British, both in the Company phase and the Raj phase, on the other. The first group of invaders, no doubt, plundered the wealth of India in the form of cash, gold, silver and precious things. But their invasion affected only few individuals, the only exception being Nadir Shah. British rule, on the contrary, affected the entire nation. They plundered regularly and systematically.

One may still argue that many rulers in India came from outside, like the Indo-Greeks, Sakas Kushans, Arabs, Turks, Afghans, and Mughals. So what was new about the British rule in India? One must understand that all the other rulers who came to India from outside made India their permanent home. They confined their activities, good or bad, within the boundaries of India. The national wealth remained within the country and was spent inside it. This at least benefitted some sections of Indians, if not all. Moreover, these Indian- based rulers encouraged industry and crafts. When the British established their rule in India, the Indian industries and crafts suffered heavily and benefitted only English industries. The nature and form of British rule were responsible for the continuous drain of wealth from India.

The nationalist leaders came to varying figures when they computed the amount of the drain. This was mainly because of the fact that they used different modes of calculation and the gap between export and import grew continuously. In 1867, Dada Bhai Naoroji computed the amount of the drain to be 8 million pounds. In 1870, this figure increased to 12 million pounds. In 1905, he declared that Rs. 51.5 crore (34 million sterling) worth of Indian produce was being drained out of India annually. G.V. Joshi claimed in 1888, that a total of Rs. 25 crore was being drained every year to England. D.E. Wacha puts this figure at 30 to 40 crores a year.

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Visible Forms of Drain

Till the 18th century, the drain was in the form of visible tribute. The process of drain began after the battle of Plassey in the following forms:

  1. ‘Gift’ or bribe taken from Mir Jaffer, Mir Qasim and Shuja-Ud-Daula
  2. ‘Profit’ earned through trade-in Bengal by the misuse of ‘Dastak’, the free pass. The employees of Company bought cheap raw materials and earned huge profit in England. Thus, they deprived Indians of a possible profit.

Invisible Forms of Drain

Besides visible form, there were some invisible forms of drain, which the nationalist leaders highlighted. They were as follows:

1. Some part of the salaries, incomes and savings of the English employees in Indian government services like military, civil, railway, doctors, lawyers etc. given by the Government of India.

2. Pension and other allowances to these officials in England, after their retirement from Indian services.

3. Home Charges expenditure incurred in England by the Secretary of State on behalf of the India Government. Home charges consisted of:

  • Salary, allowances, and pension to the Secretary of State and his juniors at India office (London)
  • Cost of military and other stores supplied to India
  • Civil and military charges paid in England on account of India
  • Payment of interest on the Indian public debt

4. Profits of private foreign capital invested in trade or industry in India.

Effects of the Drain of Wealth

Economic Effect: Dada Bhai Naoroji considered the drain of wealth to be the real cause of poverty in India. According to him, all the other causes were secondary to this cause. Other nationalist leaders also argued that the drain was the most important cause of the poverty of the Indian people. They emphasised that the drain was not only the loss of wealth but also the loss of capital. To them, the drain caused loss of employment and income. Had it been spent here, instead of England, then it would have generated employment and income here too.

The drain was responsible for slow growth of modern industry in India. The Indians had limited capital to invest. On the contrary, the accumulated capital in England, thanks to drain from India, helped in the rapid industrialisation of England. Their finished goods were now ready to ruin Indian industries. Thus, drain of wealth was also responsible for de-industrialisation in India.

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The drain of wealth affected the peasants directly. The high rate of land revenue was due to drain. The frequent occurrences of famine and food shortage were also related to the drain. The peasants were compelled to sell food grains, which were exported. The drain deprived agriculture of all productive capital.

Political Effect: The nationalist leaders through papers, book, and newspapers highlighted the drain theory. The nationalist leaders could join a single platform on this issue. Through drain theory, they brought the inherent political conflict between England and India to the surface. They highlighted that economic remedies could resolve other economic issues but drain requires a political solution. The drain issue, in fact, made leaders more active than ever.

The drain theory also created awareness among the common people. The nationalist leaders clarified them in simple terms. The peasants and common people could also grasp it as they were facing the heat of high rate of taxation. When the Congress party adopted the resolution of Swaraj in 1905 at Calcutta, presided by Dada Bhai Naoroji, the drain theory certainly was in their mind.