Drain of Wealth Theory

The drain of wealth theory has been described as the constant flow of national wealth from India to England for which India did not get adequate economic, commercial or material return. The term economic drain refers to a portion of the national product of India which was not available for consumption of its people, but was being drained away to Britain for political reasons and India was not getting adequate economic material for it. Dadabhai Naoroji, in his book "Poverty and Un-British Rule in India," published in 1871, was the first to raise the issue of resource drain from India to England. Economists such as R.C. Dutt, Dadabhai Naoroji, and others have dubbed the British syphoning system used to drain India's resources and wealth "The Economic Drain." 

Drain of Wealth Theory - Background

• According to the mercantilist theory, an economic drain occurs when gold and silver leave the country as a result of an unfavourable trade balance.
• In the 50 years preceding the Battle of Plassey, the East India Company imported bullion worth $20 million into India to balance its exports against Indian imports.
• Following the Battle of Plassey, the situation was reversed, and the drain of wealth was directed outward as England gradually gained monopolistic control over the Indian economy.
• So, the 'drain of wealth' from India to England began after 1757 (Battle of Plassey), when the Company gained political power and the servants of the Company gained a 'privileged status' and, as a result, wealth through dastak, dastur, nazarana, and private trade.
• The British government enacted a number of measures to restrict or prohibit the importation of Indian textiles into the country.
• Aside from other measures, the British government prohibited the wearing or use of Indian silks and cotton in England in 1720, imposing a penalty on both the weaver and the seller.

Drain of Wealth Theory - Features

• The exploitation of Indian resources was a hallmark of the colonial period.
• Britain's primary motivation for conquering India was to own a constant source of cheap raw materials to feed its own industrial base in Britain.
• Indians's income was spent on costly imports of finished goods from Britain, making Britain richer at the expense of India.
• Furthermore, the British government used Indian labour to expand its colonial base outside of India. Indians were paid less than their British counterparts to serve in the British army.
• The British Government's war and administrative expenses to manage the colonial rule in India were paid for with revenue collected from India and the export surplus generated by India's foreign trade.
• As a result, British rule drained Indian wealth to serve its own interests.

Drain of Wealth Theory - Process

• The revenues collected from India were used to pay the salaries and pensions of British civil and military officials working in India, the interest on loans taken out by the Indian government, and the profits of British capitalists in India. This was one method by which money was being sucked out of India.
• The drain manifested itself as an excess of exports over imports for which India received no economic or material benefit.
• Remittances to England by European employees for the support of their families and the education of their children—a feature of the colonial system of government.
• Employees of the East India Company remitted savings because they preferred to invest at home.
• Remittances for the purchase of British goods desired by British employees, as well as purchases of British goods in India
• The government made purchase of stores made in Great Britain.
• Interest charges on public debt held in the Britain (which excluded interest payment on railway loans and other debts incurred for productive works).
• Private fortunes amassed by the Company's servants in the form of illegal gifts and perquisites from Indian princes and other Bengal residents.
• Employees of the company earned a lot of money by participating in the inland trade.
• The East India Company provided military assistance to the Indian Princes in their struggle for power against a rival claimant. A large portion of this money ended up in the pockets of British citizens.
• Economic nationalists argued that the main goal of British policy in India was to turn India into a valuable market for the home country and to transform India into a supplier of cheap and secure raw material producing agrarian country.

Factors that caused External Drain

• External rule and administration in India.
• Funds and labour needed for economic development was brought by immigrants but India did not draw immigrants.
• All the civil administration and army expenses of Britain were paid by India.
• India was bearing the burden of territory building both inside and outside India.
• India was further exploited by opening the country to free trade.
• Major earners in India during British rule were foreigners. The money they earned were never invested in India.
• India was giving a huge amount to Britain through different services such as railways, roads, etc.
• The East India Company was buying products from India with that money and exporting it to Britain.

Drain of Wealth Theory - Consequences

• A large portion of these resources, which could have been invested in India, were taken and siphoned off to England.
• The government's massive public debt and interest payments necessitated an increase in the tax burden on the people of India, which was highly regressive in nature.
• According to Dadabhai Naoroji's estimates, the tax burden in India in 1886 was 14.3 percent of total income, which was significantly higher than the 6.93 percent in England.
• These tax proceeds were mostly used to pay off British creditors rather than for Indian social services and welfare.
• This type of drain of tax proceeds from India impoverished India's agriculture, industry, and trading activities, and was largely responsible for the country's economic stagnation in the 18th and 19th centuries.
• The drain of wealth slowed capital formation in India because the majority of the surplus went outside the country, whereas the same portion of wealth accelerated the growth of the British economy.
• The surplus from the British economy was re-entered into India as finance capital, further draining the country's wealth.This had a huge impact on income and employment opportunities in India.
• The drain effectively depleted India's productive capital, resulting in a capital shortage that hampered industrial development.
• Although the British undertook the responsibility of maintaining law and order, centralised political and judicial administration, road, railways, etc, but the extent of draining out of resources was excessive leading to stagnation of the economy.
• Dadabhai Naoroji contended that what was being drained out was "potential surplus" that, if invested in India, could generate more economic development.

Conclusion

The Theory of Wealth Drain was developed by Indian nationalist thinkers primarily to analyze the root causes of poverty in India. The drain, as defined by nationalists, was the transfer of wealth and commodities from India to England without the former receiving any economic, commercial, or material returns. As a result, the Drain in Indian terms inevitably took the form of an excess of export over import. The Drain of Wealth was commonly referred to as "a phenomenon of colonial rule."

Development Of Posts And Telegraph During The British Rule

• Britain’s involvement in the postal services of India began in the eighteenth century. Initially the service was administered by the East India Company who established post offices in Mumbai, Chennai and Calcutta (now Kolkata) between 1764 and 1766.

• Warren Hastings (Governor General of British India from 1773-1784) opened the posts to the public in March 1774. Prior to this the main purpose of the postal system had been to serve the commercial interests of the East India Company. Serving economic and political needs of the ruling authority remained a driving force in the development of the postal service.
• Post Office Act (1837) reserved the government the exclusive right to convey letters in the territories of the East India Company.
• In 1850 a report was commissioned into the working of the Post Office in India. This report introduced uniform postage rates dependent on weight alone (previously charges had been calculated on weight and distance). It recommended that a Manual of Instructions be supplied to postmasters to encourage uniformity of practice. The recommendations of this report led to the introduction of Act XVII in 1854. However the reforms had a mixed success with some areas persisting in old practices.
• From the late eighteenth century political power began to slip away from the East India Company. The Company was finally abolished in 1858 and India became a Crown colony ruled directly by Parliament.

Stamps:-

• The first postal stamp in India was introduced on 1 July 1852 in the Scinde district. In 1854 the introduction of uniform postage rates led to the development of the first postage stamps valid for use throughout India. As with the introduction of uniform postage in Britain this led to a rapid increase in use of the postal system. The volume of mail doubled between 1854 and 1866, and again between 1866 and 1871.
• The first pictorial stamps were issued in 1931. There was a victory issue in 1946, followed shortly by a first Dominion issue. The three stamps in the Dominion issue depicted the Ashoka Pillar, the new flag of India, and an aeroplane.

• In addition to the managing the postal services of British India, the Post Office was involved in the transmission of correspondence between England and India.
• In the 1820s Thomas Waghorn began investigations into improving mail routes between England and India. This led to the establishment of the overland route between Alexandria and Suez. Mails had previously taken three months to reach England, but Waghorn’s letters accomplished the same journey in just 35 days. Letters conveyed by Waghorn carried their own cachet ‘Care of Mr Waghorn’. After ten years of Waghorn’s efforts the British Government and the East India Company were convinced of the viability of this route and took it over.
• The India Mail Service carried diplomatic mail between the two countries. This service involved specially appointed Post Office staff of higher grades accompanying the mail from London to Marseilles where responsibility would be transferred to the P&O purser of the ship bound for India. These staff was referred to as India Mail Officers.

• Already in 1849 the East India Company had decided to construct a telegraph system along the railway lines. The telegraph became an urgent necessity on account of the Afghan war and the impending war with Burma. The first line, between Calcutta and Diamond Harbour, opened in 1851 and was used to send shipping news from the coasts to Calcutta. The major lines were completed before 1855. This remarkable speed of construction resulted from both strategic needs and Lord Dalhousie’s personal interest in the plan. The telegraph was a private enterprise in England and the United States and a state enterprise in continental Europe. In India it turned out to be a state enterprise for military reasons, despite Dalhousie’s general aversion to state monopolies. 
• Development in Telegraph system took place in the mid nineteenth century. Telegraph communication was essential for effective and safe railway signalling. In 1851 telegraphs had been extended over 4,250 miles of India. This linked forty-six receiving stations. They were from Calcutta to Agra and the northwest. It connected Bombay, Madras and Ootacamund. There were around 17,500 miles of telegraph lines by 1865. By the end of the century it reached 52,900 miles. India’s 100,000 lines carried 17 million telegraphic messages a year by the early twentieth century.
• The telegraph rose directly from political imperatives. Telegraph system was basically a response to the need for a rapid and reliable system of information. These telegraph lines demonstrated their importance by carrying their authority’s early intimations of the up-country revolt in May 1857. In India it turned out to be a state enterprise for military reasons, despite Dalhousie’s general aversion to state monopolies. By 1857 the telegraph had proved itself a critical military tool. Not surprisingly, it symbolized evil for the mutineers. With vengeance, they destroyed telegraph establishments wherever they could (and never used it to their advantage). With this lesson behind itself, the Crown rule saw massive expansion of the telegraph system within the country and between India and Europe. From then onward, the commercial uses of the telegraphs began to overwhelm strategic needs, leading to extremely rapid growth in the use of the system.
• This system was also adopted by Indian and European businessmen. By the early twentieth century the government officials and nationalist politicians was unable to function without telegrams. The telegraph system incorporated India into administrative and commercial network once submarine cables were completed between India and Britain in 1870.
• There was also a personal interest involved in the rapid construction of the telegraph system in India in the 1850s. O’Shaughnessy had built a 21 mile long experimental line near Kolkata. This was protected from the effects of tropical heat and humidity by using thicker cables. He showed how electrical signals could be sent over long distances in India. The telegraph system was basically an imported technology. Local expertise and the political patronage that this imported technology had received speeded its adoption and adaptation to the local conditions. 

• The colonial exploitation of India got accelerated and India was quickly turned into an exporter of raw materials to feed the British industries and as a market for their finished goods. In a way, they had hampered the growth of indigenous industries in India.
• Investment of British capital in this sector, amounted to a sizable drain of wealth in the form of interest payments
• The efficient network of railways and telegraphs had helped the British to easily suppress many internal rebellions, including the Revolt of 1857, and strengthen the imperial control.

• The railway network had increased the contact among people at an unprecedented level.
• Posts and telegraph network were useful for spreading patriotic ideas.
• The growth of Indian nationalism was attributed to the advent of a modern network of communications and transport.
• Indian agriculture witnessed a structural transformation with an increase in the cultivation of cash crops such as cotton, jute, tea etc.
• It also gave rise to a new class – the working class or the proletariat which in later years played a significant role in freedom struggle.