The Drain: Meaning, Causes, and Consequence | Indian Economy

In this article we will discuss about the Drain. After reading this article you will learn about: 1. Meaning of the Drain 2. Causes of the Drain 3. Estimate 4. Consequence 5. Effects on England 6. Effects on India 7. Methods of Reducing the Drain.

Meaning of the Drain:

During the last quarter of the 19th century a great controversy arose over the question of ‘The Drain’ between the nationalist leaders of India and the Protagonists of Britain. Indian nationalist thinkers developed the theory of Drain mainly for analysing main cause of poverty in India.

The main agreement that was advanced in this respect was that “a significant portion of India’s national wealth was transferred to England without any quid pro quo.” The experts described such ‘Drain’ on India’s resources as the transfer of resources from India to England either by getting nothing in return or getting only disproportionately a smaller part of such transfer of resources.

The person who first raised this issue of drain of resources from India to England was Dadabhai Naoroji in his book “Poverty and Un-British Rule in India” published in the year 1871. Dadabhai Naoroji tried to explain in his book the causes of drain, to measure the extent of such drain and to find the consequences of such drain.

Thus the British siphoning system adopted to take away India’s resources and wealth has been termed as ‘The Economic Drain’ by economists like R.C. Dutt, Dadabhai Naoroji and others.

Causes of the Drain:

Dadabhai Naoroji in his book observed, “The drain consists of two elements the first, arising from the remittances by European Officials of their savings, and for their expenditure in England for their various wants both there and in India ; from pensions and salaries paid in England; and the second that arising from remittances by non-official Europeans.”

This indicates that in order to meet the requirements of the economic drain, India had to export much as compared to its imports.

Dadabhai Naoroji observed that the following factors were responsible for the economic drain from India:

I. Remittances to England by European employees for supporting their families and education of their children—which may be considered a feature of colonial system of government.

2. Remittances of savings by the employees of the East India Company as they preferred to invest at home.

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

4. Government purchase of stores manufactured in Great Britain.

5. Interest charges on public debt held in Britain (which excluded interest payment on railway loans and other debts incurred for productive works).

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

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

Versa Anstey made an estimate of these Home Charges to the extent of 35 million pounds annually. Moreover, the British rulers realised the cost of battles they fought with native rulers from India by raising loans.

Estimate of the Drain:

Although it was impossible 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, however some estimates were made on the extent of such drain.

Verelst estimated that during the period of five years just after Battle of Plassey, total volume of drain from India in terms of goods and bullion was 4, 94, 16, 11 pounds sterling. S.B. Saul also made an estimate of such drain based on balance of payments alone 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, the volume of drain estimated by Naoroji was Rs 12 million in 1870, Rs 25 crore in 1893. In 1897, 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.

Another estimate was made by G.V. Joshi for the period 1834 to 1838 and total amount of drain from India during this period was estimated at nearly 600 million sterling.

D.E. Wacha’s estimate of drain in 1901 was to the extent of Rs 30 to Rs 40 crore per year.

S.N. Banarjee’s estimate of average annual drain for the last 30 years of 19th century was of the order of 30 million.

R.C. Dutta’s estimate of drain was found to be around 20 million per year during the early part of 20th century.

Considering this huge drain of resources from India, Irfan Habib observed, “The fact that India had to have a rate of saving of 4 per cent of its national income just to pay the Tribute must be borne in mind when economists speak of the lack of internal capacities for development or the low per capita income base, from which the British could not lift the Indians, however much they tried.”

Consequence of the Drain:

The huge amount of drain of resources and bullions from India to England created a serious impact on the economy of India and a favourable effect on the economy of England. Such consequences of drain were studied in detail by various Indian economists like Dadabhai Naoroji, M.G. Ranade, R.C. Dutta, G.K. Gokhale, G.V. Joshi and others and emphasised in detail the extremely deleterious effects of the Drain.

While criticising the drain of resources and capital from India to England, 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.”

In 1901, R.C. Dutta observed that “the drain from India was unexplained in any country on earth at the present day, one half of the net revenue flows annually out of India verily the moisture of India blesses and fertilisers other lands………….. So great an Economic Drain out of the resources of land would so impoverish the most prosperous countries on earth; it has reduced India to a land of famines, more frequent, more widespread and more fatal than any other known before in the history of India, of the world.”

It would be better to study the effects of Drain on both England and India.

Effects of the Drain on England:

A huge volume of drain of resources and capital from India to England resulted a better standard of living in Great Britain. The Drain also resulted huge investments in England agriculture and industry after 1750. These investments were partially responsible for agriculture revolution in England and the 18th Century and also for Industrial Revolution in England after 1750.

England attained the take-off stage of its growth by utilising the resources drained out of India. Huge amount of remittances from British officials in the form of saving and pensions after serving in India empowered those people to devote on construction of roads, railways and canals, new inventions and also for bringing rapid changes in all different sectors of its economy.

Thus Drain of resources were responsible for laying foundation of economic prosperity in England.

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 these resources which could be invested in India were snatched and siphoned off to England.

Huge public 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 6.93 per cent in England.

Moreover, these tax proceeds were mostly used for making 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 responsible for stagnant stage of its economy during the 18th and 19th centuries.

Although the British undertook responsibility of maintaining law and order, centralised political and judicial administration, roads, railways, educational set up etc. but the extent of draining out of resources was too excessive leading to stagnation of the economy and poor and miserable condition of Indian masses.

Nationalist leaders of India analysed the various harmful effects of Drain in different ways.

As per Dadabhai Naoroji’s opinion, the drain of resources was the major and sole cause of India’s poverty. Naoroji, R.C. Dutta and S.N. Banerjee were also of the opinion that the drain had created harmful effects on the level of income and employment of India. Drain had resulted loss of generation of income and employment in the country.

In this connection, R.C. Dutta observed, “For when taxes are raised and spent in a country, the money circulates among the people, fructifies trade, industries and agriculture, and in one shape or another reaches the mass of the people. But when the taxes in a country are remitted out of it, the money is lost to the country forever. It does not stimulate her trade or industries or reach the people in any form.”

The national leaders were of the opinion that drain of resources resulted loss of capital rather than loss of wealth. Drain resulted a huge depletion of productive capital leading to fall in the volume of investable resources in the country. This aspect of the loss of capital was considered as core issue of the Drain theory of Naoroji.

This drain of resources resulted industrial retardation in our country g.v. joshi, in this connection observed, “No nation can stand such a drain and yet hold its own in the industrial field.”

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

Methods of Reducing the Drain:

In order to reduce the burden of the Drain, nationalist leaders mentioned several measures. The first measure suggested by them was the Indianisation of the civil and military services and thereby reducing the number of British personnel and increase the number of Indian personnel to a reasonable proportion.

The second method suggested was the reduction of Home Charges realised from India and bearing a major part such home charges by England.

The third method suggested for reducing the burden of drain was to purchase government stores in India and also by checking increasing import of private foreign capital.

Thus, this huge economic drain of resources from India put a serious hurdle in the path of capital formation in India. Moreover, British brought back the drained out capital to India and gradually set up 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 in the area of trade and principal industries.

As a result, British industries established in India drained out further resources in the form of regular remittances of interests and profit from India into Britain. Thus such a large size of economic drain created a serious hurdle in the path of economic development of India till 1947 and was also largely responsible for growing poverty in the country.