The Theory of Drain of Wealth was developed by the Indian nationalist thinkers mainly with a view to analyse the main causes of poverty in India. The nationalist’s definition of the drain was the idea of transfer of wealth and commodities from India to England without the former getting back any economic, commercial or material returns. Hence the Drain in the Indian conception inevitably took the form of an excess of export over import. The Drain of Wealth was referred to as typically “a phenomenon of the colonial rule.” The transfer of resources from India to England either without getting anything in return or getting only a disproportionately small part of such a transfer of resources has come to be described as the Drain of India’s resources. The person to draw pointed attention to this drain of resources from India to England was Dababhai Naoroji in his book the Poverty and Un-British Rule in India. Dadabhai Naoroji made an attempt, in his book, to explain the causes of the drain, to measure the amount of the drain flowing from India to England, and to trace the consequences of such drain. Dadabhai Naoroji tried to prove that the prevailing mass poverty in India was the direct consequence, among other reasons, for the drain of resources from India to England.
According to Dadabhai Naoroji, the following forms of drain can be identified:
- Remittances to England by Europeans for the support of families and education of children-a feature of the colonial system of government.
- Remittances of savings by the employees of the company, since most employs preferred to invest at home.
- Remittances for purchase of British goods for the consumption of British employees as well as purchase by them of British goods in India.
- Government purchase of store manufacture in Britain.
- Interest charges on public debt held in Britain (excluding interest payments on railway loans and debts incurred for productive works.)
In addition, the Government of India had to make huge payments to people in England on account of political, administrative and commercial connections established between India and England. These commitments were called Home Charges. The home charges consisted of many items such as Interest in public debt raised in England at comparatively higher rates; Annuities on account of railway and irrigation work; Payment in connection with civil departments where Englishmen were employed; India office expenses including pensions to retired officials who had worked in India or who worked for India in England and retired there, pensions to army and naval personnel, and their furlough allowances.
The factors which resulted in the external drain were: - Firstly, India is governed was a foreign government. Secondly, India did not invite immigrants, which bring labour and capital for economic growth. Thirdly, India paid for Britain’s civil administration and occupational army. Fourthly, India bore the burden of empire building both in and outside of its borders. Fifthly, opening the country to free trade was actually a way to exploit India by offering highly paid jobs to foreign personnel. Lastly, the principal income earners would buy outside of India or leave with the money as they were mostly foreign personnel.
Till the Battle of Plassey i.e., 1757, the European traders imported bullion into India in return of the export of the Indian cotton and silk goods which had a flourishing market in the west. But the situation was soon reversed after the conquest of Bengal after the Battle of Plassey by the English East India Company, when the company not only stopped importing bullion into India, but began to purchase goods from the surplus revenues of Bengal and the profits made from the duty-free inland trade. This was the beginning of the plunder of Bengal and by the end of the 18th century the whole country became a playground of plunder by the British Government. India had to pay a very heavy price for two hundred years of colonial rule. The continuous plunder of India’s raw materials, resources and wealth made Britain enrich itself at the cost of India’s growing poverty. Thus, the economic exploitation of India at the hand of the colonial government was so massive the it left India with ‘poverty amidst plenty’.