Drain of Wealth Theory

 Drain of Wealth Theory

Notes

The Drain of Wealth theory holds that a part of India's national wealth was transferred to Britain without any equivalent economic return, impoverishing India. It was the core of the Moderate (economic nationalist) critique of colonial rule.

Proponents

• Dadabhai Naoroji: first stated it in England's Debt to India (1867) and developed it in Poverty and Un-British Rule in India (1901). He also spoke of a moral drain, the loss of employment and leadership to foreigners. He gave evidence before the Welby Commission (1895-1900) on Indian expenditure.
• R.C. Dutt: Economic History of India (1901-03). M.G. Ranade, G.V. Joshi, G.K. Gokhale, G. Subramania Iyer, and Tilak also criticised it. William Digby (Prosperous British India) supported the view.

Components of the drain

• Home Charges: interest on public debt, guaranteed interest on railways, pensions and salaries of British officers, stores purchased in Britain, cost of the India Office.
• Remittances and savings of British officials and merchants, and profits of British capital.
• Cost of the army and imperial wars (e.g., Afghan wars, expeditions beyond India) borne by Indian revenues.
• Export surplus for which India got no returns in goods or money.
• Early phase: the plunder of Bengal after Plassey.

Effects

• Shortage of capital; poverty and famines; deindustrialisation; slow growth; heavy taxation.

Debate: British writers argued that the transfers were payment for services and capital (railways, administration), not a drain, and that it was small; nationalists replied that the benefits were mostly for Britain. The Indian National Congress adopted the theory and made it a core of its economic programme.

Key Points

• Naoroji: England's Debt to India (1867); Poverty and Un-British Rule in India (1901).
• Also R.C. Dutt, Ranade, Gokhale, Digby.
• Elements: Home Charges, remittances, army costs, profits.
• Naoroji also coined "moral drain".
• Central to the Moderates' economic nationalism.

MCQs

Q1. Who propounded the Drain of Wealth theory? (a) Dadabhai Naoroji (b) R.C. Dutt (c) M.G. Ranade (d) G.K. Gokhale Ans: (a). Others elaborated it.

Q2. The book Poverty and Un-British Rule in India was written by: (a) R.C. Dutt (b) Dadabhai Naoroji (c) William Digby (d) Gopal Krishna Gokhale Ans: (b). 1901.

Q3. Which of the following is NOT a component of the drain of wealth? (a) Home Charges (b) Remittances by British officers (c) Profits of British capital (d) Grants for Indian industries Ans: (d).