India’s Drain of Wealth from mid-18th to mid-19th Century

In the meeting of East India Association during mid-19th century, Dadabhai Naoroji presented a paper, ‘England’s Debt to India’, where he first defined the concept of “Drain of Wealth” in which wealth was exported from India to Britain for which India earned no material return. He mentioned it as the ‘price of her rule in India’ where one fourth of the revenue earned gets added to the revenue of British. Considering the Drain as the natural result of the foreign rule, he underscored the problem of not extracting the wealth but the process of impoverishment it brought to the country where there was no equivalent service in return.

After the Battle of Plassey in 1757, the East India Company gained political and territorial control over the Bengal Province. After 1765, when the collection of tax revenue started in Bengal Province, the amount of drain following the same increased. In contrast to the liability of repayment of the deficit to any nation, the same was not followed with India. As mentioned above, tax was used to buy goods and the deficit that arose beyond that was not paid in any form. Rather, the goods extracted from India in return of no payment were used to reduce the trade deficit with other countries. Hence, by using India’s resources to its own benefit, the drain was unfathomable. Various legal interventions between 1767 and 1784 from the British Parliament instilled their control and regulation over the territory which was not only political in nature but economic, cultural and historical too. Till 1757, bullions were exchanged in return for the commodities. However, post 1757, unrequited exports i.e. excess of exports over imports took. Dadabhai Naoroji highlighted that the difference between exports and imports was extracted by the British i.e. nothing as a commercial return was sent to India. This difference was termed as a ‘tribute’ from India to its alien rulers and was first defined by him as the ‘Drain of Wealth’ or the unilateral transfer from India to Britain.
Prior to 1813, India was an exporter of manufactured commodities and an importer of precious metals. However, in the mid nineteenth century, India turned to be an exporter of raw materials and food products and an importer of manufactured commodities, destroying India’s indigenous handicraft industries and its national occupation, weaving. It was a source of employment for millions of men and women. However, the modern industries under the patronage of the British couldn’t compensate the loss of both, employment and the number of goods that were available for the locals at lower cost. R.C. Dutt termed this displacement as,’ saddest chapter in the history of British India’ as the source of wealth was narrowed.

With no other avenue for employment, there was an increasing reliance on agriculture as the mode of economic activity, leading to disguised unemployment due to overcrowding, encroachment and subdivision of the limited land available and inadequate methods of production leading to the depletion of the soil quality. Within agricultural activity also, there was an over dominance of the British. Less food crops and more commercial crops were encouraged such that they could be exported to Europe and serve as a source of revenue for the British. This led to lack of food availability for the local people, paving their path towards starvation, famine and death. Short availability of food which were the basic necessities such as wheat, rice, cotton, jute and oil seeds were all exported. With less supply and more demand, prices increased, adding to their misery and distress. Institutionalization of Permanent Settlement in Bengal accrued much revenue to the English administration. Bengal underwent a surplus from 1795-1810 due to its income from the cultivation and the returns from soil. This land tax brought revenue around 22 millions but expenditure had risen to 23-24 millions, as per R.C. Dutt. This led to enormous budget deficit, increasing taxation consequently. Hence, the cycle of drain was a continuous process as the revenue was used for financing its own expenditure, both within and outside the country and when it led to deficit, more sources of revenue was used to channelize the same.

What added to this adversity was that India was much poorer than England and this taxation was an extraction from the poor people. Inequality in distributing the burden where the poor were taxed more than the rich, this debilitating process brought famines and deaths, left Indians with less savings and capital accumulation. Draining wealth, earnings and surplus from the country was not a one-time loss. It was rather a vicious cycle as it deprived the country of investment and savings to decrease the productivity of the economy in the future. This was a hindrance to the capital formulation and hence the industrial growth of the country, increasing its reliance on foreign capital, hence, draining out more wealth in the form of interest and profit out of the country. This made the dependence of India on England a recurring process. Rather, with the aid of India’s financial wealth, England intensified its capital accumulation to rapid industrialization. With no competition in India, it eased the process for the Europeans to establish its monopoly in manufacturing goods, with India remaining a mere exporter of raw materials and cheap labor.

While British supplied foreign capital to India, the interest remitted to abroad served as a profit because the interest earned on the capital was not only used to send new capital to India but also to establish the dominance in other parts of the world. Also, this investment in India was out of the previous earnings from India in terms of trade, administrative expenditure and it was partly invested in India in terms of foreign capital. Not only interest, but it sent abroad all the profits that were accumulated from the investment, turning out to be a loss for the Indian Territory. As Dadabhai Naoroji pointed out, India turned to be exploited by its own capital. This process of reinvesting of profits was termed as ‘self-expanding drain’ by the opponents. Although the foreign enterprises were thought of providing new employment opportunities for displaced workers of the indigenous industries, higher positions of responsibility were always held by the foreigners and the salaries that they earned were sent to abroad, providing truncated space for savings and investment in India.

Construction of railway services in 1850s caused a huge drain of wealth for India. Although railways connected different parts of India causing easy movement of people and good benefitting India in the long term, the short-term trade off was pretty harsh on India. Along with the remittances in the form of interest, India also had to bear the administrative expenditure of European staffs and officials. Also, with railways, import of European products eased, dominating the Indian markets and thereby creating competition for the local goods. Coupling with this, export of food grains escalated, causing famine a regular phenomenon. Also, it posed immense burden on the financial condition of the country, a setback for the taxpayers of the economy. By introducing railways, which was more of a British need, India was deprived of the amenities that were the need during that time. Due to financial loss in railways, investment in irrigation couldn’t be followed, causing disparities in the production of food grains and providing more agricultural opportunities to the people.

The drain of wealth from India comprised a substantiated part of military expenditure not only in war or development of military for India’s safeguards but it was used by the British for its war related expenses with other countries as well. India witnessed a deficit from 1824-1827 following the Burmese war of Lord Armhest. The armies which were maintained in India not for the country’s purpose but for the imperial use involved the expenditure from Indian side. Huge expenditure was done to protect India from Russian invaders. Dadabhai Naoroji pointed out to the large scale employment of the Europeans in the Indian administrative services. This not only truncated jobs for the Indians, but India was drained off wealth as the European employees were paid high wages which was sent abroad and Indians were assigned low pay positions if required. Hence, it deprived India of employment as well as income to further invest in India. Also, with more unemployment in India, it increased the availability of laborers, bringing down the nominal wages for the workers. Another major constituent of the drain of wealth was the Home Charges which were paid on behalf of the Indian government to the expenditure in England. It included the interest on public debt and railways, pensions and retired pay to the European officials who worked in India and civil and military charges on behalf of India, dividends on the Company’s stock and cost of buildings of Home department of Indian Government.

Although Mughal rule preceding East India’s rule was treacherous in its governance, one aspect which differentiated both was that former invested whatever it extracted from the Indians in India itself but the latter collected the same and invested it in its own country, bringing no return in this method of one sided transaction. It reflects how through this medium Britishers succeeded in expanding its empire and dominance not only in India but in other countries as well. Drain of wealth in the latter part of 18th and early part of 19th century helped in bringing forward the question of political ascendancy of India. It subsequently brought the question of economic justice through the feeling of nationalism amongst the citizens of the country.

– Bishakha Jajodia (Freelancer)

Picture Credits: Wikipedia

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