(Online Course) GS Concepts : Mordern Indian History - Drain of wealth

Topic: Drain of wealth

Question : Discuss in brief the theory of Drain of wealth?

Answer:

The main gist of the drain of wealth theory was that a large part of India’s national wealth or total annual product was exported to England for which the Indians got no adequate economic or material returns. This one way drain of India’s wealth was the major cause of her poverty. The colonial government was utilizing Indian resources- revenues, agriculture, and industry not for developing India but for utilization in Britain. And had these resources been utilised within India then they could have been invested and the income of the people would have increased. Ranade opined that one-third of India’s national income was being drained away-in one form or the other.

HOW WAS THIS DRAIN TAKING PLACE?

1. The salaries and pensions of British civil and military officials working in India, interests on loans taken by the Indian Government, profits of British capitalists in India were all being met by the revenues collected in India. This was one way money was being drained away from India.

2. The drain took the form of an excess of exports over imports for which India got no economic or material return. This ‘excess of export over imports’ according to A C Banerjee was possible through three means. Firstly, it implies private fortunes obtained by the Company’s servants in the form of illegal presents and perquisites from Indian princes and other persons in Bengal. Secondly, Company’s servants earned large incomes through their participation in the inland trade. And lastly, fortune made through private trade by the British Free Merchants. In fact, 1/3 of India’s total savings, almost the entire land revenue collection and 1/2 of government revenues comprised a portion of the drain.

3. East India Company also provided military help to the Indian Princes in their fight for power against a rival claimant(s). In this manner in the period of 1761-1771 alone, the Company’s Government earned a net amount of £1,190,000 from the Indian princes. Large part of this money went in to the personal pockets of the British. Some of it was used to buy Indian products which were sold across Europe. The profit thus gained went into the pockets of the British. So Indian money was used to buy Indian goods The Company’s officials also received gifts for their help and India again did not gain any fiscal benefits in return.

4. Unequal terms of trade- The economic nationalists argued that the main aim of the British policy in India was to make her a valuable market of the home country and to transform India into a supplier of cheap and a secure source of raw material producing agrarian country. They cited the protective tariffs and other discriminatory policies followed by the government as proofs While Britain and rest of the European powers imposed protective tariffs on foreign goods coming in, no corresponding import duties were imposed on products coming in India This exposed whatever industries that existed in India to tough competition from cheaply mass produced goods coming in

5. In the parliamentary enquiry of 1840 it was reported that while British - cotton and silk goods imported into India paid a duty of 3½ per cent and woollen goods 2 per cent, Indian goods imported into Britain paid 10 per cent on cotton goods, 20 per cent on silk goods and 30 per cent on woolen goods.

6. To this unequal trade was added after 1813, cheap British factory made yarn and cloth which took away India’s local market from its own producers. India experienced deindustrialization over the half century following 1810 due to terms-of-trade shocks.

7. The expenditure of armed forces required to maintain the expansive empire across the world. Afghanistan., Burma and so on, was met by Indians revenues and personnel. Military expenditure accounted to almost the 1/3rd of the budget.

8. The two most important forms of drain were Home Charges and Council Bills, also called invisible charges.

9. Home Charges represented the single biggest source of the direct drain of wealth, the expenses in Britain borne by the Indian treasury. These Home Charges were a huge burden on the finances and contributed to a sustained and continuous deficit in the budget throughout the nineteenth century. Home charges included pensions to British Indian officials, army officers, military and other stores purchased in England.

10. Council Bills- Council Bills were the actual means through which money was transferred. It does not refer to a piece of legislation. Council Bills are best explained by quoting from Sir John Strachey’s lectures given in 1888. ‘The Secretary of State draws bills on the Government treasury in India, and. it is mainly through: these bills, which are paid in India out of the public revenues, that the merchant obtains the money that he requires in India and the Secretary of State the money that he requires in England.’ Sumit Sarkar further breaks down the explanation: The would be British purchasers of Indian exports bought. Council Bills from the Secretary of State in return for sterling (which was used to meet the Home Charges). The Council Bills were then exchanged for rupees from the Government of India’s revenues. Next the rupees were used to buy Indian goods for export. Conversely, British officials and businessman in India bought Sterling Bills in return for their profits in rupees from British owned Exchange Banks; the London branches of these tanks paid in pounds for such bills with the money coming from Indian exports” purchased through-the rupees obtained through sale of Sterling Bills.”

11. European Agency Houses and European Banks- With the use of the East India Company and the gradual flood of European traders in India, the indigenous banking houses like that of the Jagat Seth declined and were replaced by European Agency Houses and Banks, which were started by the Company’s servants. These Company servants opened these houses and banks after accumulating huge fortunes through their illegal private trade.

12. The drain was not limited to just money or goods : but had wider ramifications for India. The drain frustrated employment opportunities in India and also that of investment.

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