Some Aspects of the Economic Drain from India during the British Rule

Author(s): Rama Dev Roy

Source: Social Scientist , Mar., 1987, Vol. 15, No. 3 (Mar., 1987), pp. 39-47
Published by: Social Scientist

Stable URL: https://www.jstor.org/stable/3517499

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 RAMA DEV ROY*

Some Aspects of the Economic Drain from India

During the British Rule

IN THE discussion of poverty in India, a large number of econo

failed to note that poverty is institutional and therefore histor
character and thus "long term historical studies in India are of
importance, in order to learn what factors contributed to the proble
poverty today."' To find out the real cause of poverty in India, more
hundred years ago, Dadabhai Naoroji in his 'Poverty and Un-British
in India' (1876) developed explicitly a 'drain theory' and according t
this 'economic drain' by the alien ruler was a 'bleeding drain' inher
the built-in-mechanism that extracted a large part of revenue in the
of an export surplus from India and transferred it to England and
European countries.
The problem of drain was highlighted first by the histori
Alexander Dow, a military cadre of the East India Company in the
1770's and was discussed from several angles by administrators like
Francis, John Shore and Lord Cornwallis. Edmund Burke devel
theory based on the mechanism of drain in 1783. Rammohan R
the first Indian to work out the sources and mechanism of drain around
1830. R.M. Martin in 1838 clearly stated the problem. Among the well-
known Bengali writers, who discussed the 'drain' in some form or other,
mention may be made of Iswar Chandra Gupta, the editor of the Sambad
Prabhakar, Dwarakanath Vidyabhusan, the editor of the weekly Somprakas,
Bankim Chandra Chattopadhyay, Bhudev Mukhopadhyay, Romesh Dutt,
Sakharam Ganesh Deuskar and finally Rabindranath Tagore.

East India Company's Trade with India before 1757

Before going into an analysis of the 'drain theory,' it is necessary to
develop a clear view of British commercial policy in India. The English
East India Company along with other European companies came to trade
with India from the beginning of the 17th century. The East India
Company's commercial policy was based on the principle that they had to
purchase Indian goods in exchange for bullion as there was little demand
*Centre for Studies in Social Sciences, Calcutta.

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 40 SOCIAL SCIENTIST

for European consumer goods in India. By selling, on the other hand,

Indian silk, drugs, spices, etc., in the European market at a much higher
price, the Company earned a considerable profit. Between 1601 and 1612
cargo worth ?200,540 were carried in 9 East India voyages of which 69
per cent consisted of bullion.2 This is also evident from Thomas Mun's
estimate which shows that the value of the East India Company's export in
the first two decades was ?292,286 of which 65 per cent was in bullion.
The danger of a drain of treasure from the west became a nightmare and
India became the 'sink of precious metals'.3 Lord Clive mentioned in 1772
that "silver of the west and the gold of the east have for many years been
pouring into that country [Bengal] and goods only have been sent out in
return."4
This predominance of bullion in the export trade of the East India
Company with India continued without any interruption until 1757 in spite
of several controversies among the mercantilists themselves. The following
table shows the percentage share of bullion in the East India Company's
export to India and Bengal from 1711 to 1765.5

Table 1

Percentage share of bullion in East India Company's Export to

India and Bengal, 1711-1765

Year India Bengal

I 2 3

1711-20 80.00 86.00

1721-30 81.00 83.00
1731-40 73.00 66.00
1741-50 74.00 75.00
1751-56 68.00 66.00
1757-65 13.00 0.00

English trading activity in India

Eastern Coast and finally to Bengal
sational structure of their trade wa
visit of their ships to the ports of
procuring suitable cargo to "trading
to fort and from fort to territorial
was theoretically advocated even by
order. He had no objection to th
Company in India and supported
commerce.7

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 SOME ASPECTS OF THE ECONOMIC DRAIN FROM INDIA 41

Exposition of Drain in the 18th and 19th Centuries

A revolution in the East India trade took place after the British
conquest of Plassey in 1757, when the process known as the 'Plassey
plunder' started almost instantaneously. Enormous wealth began to flow
into the Company's exchequer as well as the private purse of the Com-
pany's servants through bribe, exaction and plunder. Lord Clive wrot
to the proprietors that had he accepted the offers from the rich at
Nurshidabad, he might have possessed millions.8 By 1760, the thre
districts of Bengal, Burdwan, Midnapore and Chittagong and also 24
Parganas came under the possession of the Company in addition to their
old possession of the Calcutta Zemindary. In 1765 the Company obtained
the Dewany of Bengal, Bihar and Orissa.
The process of drain actually started after 1757. It is evident from
Table 1 that the Company ceased to export bullion to Bengal as of that
year, although some marginal export of bullion occurred to other places
All the purchases in Bengal and other parts of India were made out o
the surplus of the territorial revenue of Bengal. The part of revenu
devoted to such purchases was known as 'investment'. The following
table shows the quantum of investment of the East India Company from
1762 to 1771.9

Table 2

Investment of the East India Company from 1762 to 1771

Place Amount
(1000 ?)

1 2

Bengal 5,778
Madras 1,494
Bombay 909
Bencoolen 40
Mocha 174
Total 8,394
Percentage share
of Bengal 69

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42 SOCIAL SCIENTIST

Although technically the total 'investment' as shown in this table

might not have been financed out of territorial revenue-the amount
deposited against bills of exchange on England and the profit on the sale of
European goods entering into the receipt side of the budget-for all prac-
tical purposes, sources other than territorial revenue contributed little
to the Company's purchase of East India goods. Other components of
'drain' besides 'investment' were (i) profits of private trade (ii) salaries of
the European officials and (iii) their remittances to England.
Alexander Dow spent twenty years in the Bengal Army, but because
of his contact with British intellectuals was able to write on the history
and conditions of Bengal. According to Dow "the English, the Dutch,
the Danes and the Portuguese and the various nations of eastern and
western Asia taken together poured into this bottomless pit a total volume
of trade worth, at a conservative estimate, about one million and nine
thousand pounds."10 The balance of trade was always in favour of
Bengal which was 'the sink where gold and silver disappeared, without the
least prospect of return'. Dow estimated that the annual drain from
Bengal under the British rule amounted to ? 1,477,500 (total annual
investments of various East India Companies minus the annual value of
bullion imports into Bengal), which consisted of the savings of the Com-
pany from its revenue, the value of British exports and the private fortunes
of individuals."
The remittances from Bengal included the private fortunes of the
Company's servants and free traders, a portion of emoluments of the
Company's sevants and transfer of resources to other presidencies. Philip
Francis (1776) divided the flow of drain into four streams: (1) the East
India Company's investment, (2) remittances to other presidencies, (3) the
transfer of private income to England and (4) the transfer of income from
private trade. Francis estimated the outflow under the second and the
fourth channels at Rs. 20 lakhs and Rs. 12 lakhs per annum.12 In his
minute recorded in the Fifth Report from the Select Committee of the
House of Commons (1812), John Shore maintained in 1787 that the Com-
pany as sovereign appropriated revenues only to remit them through
commerce to Europe. He also categorically maintained that from 1765
the Company's trade continued with no equivalent returns. Lord
Cornwallis also referred to a heavy drain of wealth from India in his
minute of 1790 due to a large annual investment in Europe and remittances
of private fortunes for many years.'3
A macroeconomic exposition of the drain is found in the celebrated
Ninth Report from the Select Committee of the House of Commons, 1783
authored by Edmund Burke. Burke pointed to the 'investment' of the
Company as the main cause of impoverishment of India, though generally
taken by the Britishers as a measure of its wealth and prosperity. Burke
argued, an exportation implied a reciprocal supply. But the whole export-
ed produce of the country was not exchanged in the course of barter,

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 SOME ASPECTS OP THE ECONOMIC DRAIN FROM INDIA 43

Actually it was taken away without any return or payment whatsoever.

He concluded "the country has suffered what is tantamount to an annual
plunder of its manufactures and its produce to the value of twelve hundred
thousand pounds." Burke also maintained that the greater part of the
capital of the Companies of France, Holland and Denmark and "perhaps
the whole capital of some of them, is furnished exactly as the British is,
out of the revenues of the country .."14 The investment of the East
India Company in Bengal for the years 1766-1780 was split into four
broad heads-drugs, piecegoods, silk and saltpetre. Out of total invest-
ment of ? 12,360 thousand during 1766 to 1780, 65 per cent was contri-
buted by piece goods and 31 per cent by silk, making together 96 per cent
of the total.'5
According to the data furnished by the Committee of Secrecy 1773,
during the years 1761-62 to 1770-71, an amount of ? 8,260 thousand was
remitted to other settlements from Bengal of which ? 1,592 thousand was
in bullion. The net value of cargo to Europe was ? 4,153 thousand
(amount of cargo from Europe at European prices with 10 per cent)."
In answer to a question on the possible benefit of a large scale
investment of European capital in this country to improve its resources,
Rammohun Roy submitted that an introduction of the system of permanent
settlement by the Europeans in this country would naturally tend to stop
"a large sum of money... now annually drawn from India by Europeans
retiring from it with the fortunes realised .. .." and, necessarily would
help greatly to improve its resources. In a series of tabular statements
on the salaries and wages of European officials, he showed that in 1827 an
amount of Rs. 15,500 was spent annually on an average for 1306 Euro-
peans servants of the East India India Company. Moreover an amount
of Rs. 3 crores was remitted annually to England on account of expen-
diture there. Rammohun cited a letter of the Court of Directors
Bengal, dated 20th June 1810 where it was stated that "it is no extravagant
assertion to advance, that the annual remittances to London on account of
individuals, have been at the rate of nearly ? 2,000,000 per annum for a
series of years past." He also referred to a work entitled On Colonial
Policy as Applicable to the Government of India by a very able servant of
the Company where the author estimated the amount of capital or "the
aggregate of tribute, public or private, so withdrawn from India from
1765 to 1820, at ? 110,000,000." Thus, Rammohun tried to estimate the
annual drain with available data and documents along with its impact on
the economy by the end of the third decade of the 19th century.17
R.M. Martin estimated in 1838 that the annual drain from India
occurred at the rate of 3 million pounds. This amount with a compound
interest of 12 per cent would amount to ? 724 million in course of 30
years. Aecording to Martin such an outflow would have impoverished
even England.18
In needs to be mentioned that the Bengali periodicals regularly

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44 SOCIAL SCIENTIST

condemned the economic policy of the Raj from its very inception in 18
The Sambad Prabhakar (weekly 1831, tri-weekly 1836, daily 1839) edited
the well known Bengali poet Iswar Chandra Gupta constantly referred
the British rulers as aggressors and pointed to a 'bleeding drain' inhere
in the fiscal policy of the alien rulers. Particularly the periodical emph
sised the expenditure incurred on wars of annexation.19
The Somprakas (weekly 1853) edited by Dwarakanath Vidyabhusan
was up in arms against the economic policy of the British in India. In
editorial article it was pointed out that military expeniture was a bottom
pit to be filled with Indian revenue.20 In an article on 'Poverty of Ind
and the Revenue of the British Government' it was shown that agricult
is the principal source of income in India whereas, in many other stat
industry contributed the largest share. There was no effort in India t
develop industry and if an initiative was found, it was suppressed by t
rich and all powerful British merchants with the help of state pow
Extravagance was the basic rule of public expenditure in India. T
European officials enjoyed an unparalleled level of salary on the ple
working in unfavourable alien conditions. Moreover, an annual remitta
nce to England was accomplished through the export surplus to the exte
of Rs. 19 crores 20 lakhs.2'
Bankim Chandra Chattpodhyay mentioned two elements of drain-
financingwars out of Indian revenue and home charges.22 Dadabh
Naoroji placed the drain theory on an empirical basis marshalling volu-
minous historical data in the 1870's. His methodology is much mor
important than the estimate itself. He compiled two series from t
Parliamentary Returns - annual charges in India and annual charge
England. The former represented public expenditure of which one-ten
for the period 1787-88 to 1828-29 constituted an item of'drain.' T
ratio was one-eighth in the subsequent period. The elements of drain a
involved items like remittances to England by European employees
the support of their families and for the education of their childr
remittances of savings and that for the purchase of British goods for th
own consumption, purchases by the Britishers in India of goods manu-
factured in Great Britain, government purchases of stores of Brit
manufactures in India and England not incorporated in the home charg
The second series, viz, the charges in England included interest on pub
debt held in India and loss in exchange and excluded interest on railwa
debt and debt incurred for productive works. Before 1788 there were
home charges, but Dadabhai made a rough estimate of the transfer
wealth. Wealth transferred from 1787-88 to 1828-29 at the rate of one
eighth/one-tenth of Indian charges plus charges in England plus
estimated transfer prior to 1788 aggregated and being capitalised at 5
cent yielded a final figure (including booty and other 'invisible' element
of not less than ? 1,500 million.23
Bhudev Mukhopahyay in his noted Bengali work Samajik Prabandh

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 SOME ASPECTS OF THE ECONOMIC DRAIN FROM INDIA 45

published in 1892 discussed the economic situation in India. He appre

ciated the positive results of the British administration leading to an
extension of cultivation and an increase in population. But he believe
that per capita income did not increase due to a decline in the generatio
of income in the industrial sector as a result of foreign competition. Th
second reason for a stagnant per capita income was an outflow of wealth
to England. One-fourth of the revenue collected by the Britishers in Indi
was remitted to England for incurring expenditure there. The amount wa
Rs. 17 crores in 1879 and Rs. 23 crores in 1892. Besides this, a significan
portion of income of 70,000 British soldiers and 10,000 Europeans belong-
ing to other professions was also remitted to England. An export surplu
of Rs. 30 crores was automatically remitted although a portion came bac
to India mainly for the improvement of rail and water transport, indigo,
tea, etc. But the elements of return did not materially effect the volume
of automatically remitted surplus.24
Romesh Dutt in his Economic History of India estimated in 1901 the
Indian debt from 1862 to 1901 at 200 million pounds and the remittance
through home charges at 16 million pounds per annum. The salaries o
European officers stood at 10 million pounds. Thus, one-half of the net
revenue collected in India (? 44 million) was drained out to England
During the 46 years from 1722-93 to 1837-38 the total profit of the
Company, 32 million pounds, was entirely distributed among the share
holders as dividends and moreover they had to resort to borrowing whe
India was obliged to pay the interest.25
William Digby mentioned the terrible drain and cited the estimate of
R.M. Martin (1838) to say "from that day to this (1901) there has bee
no cessation in the flow. More, with every year it has increased until th
stream which in 183) was regarded as almost beyond control, has increased
ten fold, and has become altogether beyond control . . .During the las
thirty years of the century the average drain can not have been far short
of ? 30,000,000 per year or in the thirty years, ? 900,0C0,000 not reckonin
interest."26 Digby connected the 'drain' with the poverty of the people
and used the results of the confidential enquiry into the condition of th
lower classes in Bengal by Lord Duffrin.
Sakharam Ganesh Deuskar elaborately dealt with the impact of
British rule in India and discussed the development and retardation in the
Indian economy on a quantitative basis. Only some of his findings ar
being mentioned in the present context. He computed an export surplus
of Rs Rs. 70 million between 1835 and 1902 remitted to England without
any return. He cited several authorities on the adverse effect of a transfe
of resources through home charges. Mentioning Martin's estimate of
Rs. 84,000 million upto 1838, Sakharam estimated that the transfer con-
tinued at the rate of Rs. 30 to 40 mlllion per year upto 1858. And lastly,
in the 35 years preceding 1901 the per annum outflow in the form of hom
charges and salary and stipend of the European servants was estimated at

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46 SOCIAL SCIENTIST

Rs. 450 million to produce a total of Rs. 15,750 million. He quoted a

letter of Dadabhai Naoroji to the Secretary of State for India written on
16th November, 1880 to say that "the thoughtless past drain we may
consider as our misfortune, but a similar future will, in plain English, be
deliberate plunder and destruction."27
Conclusion
Rabindra Nath Tagore was well conversant with the historical
process. In the resume on the occasion of his 80th birthday in April
1941 the poet attributed the heart-rendering poverty of the Indian masses
to the Britishers who had kept their mastery over machine a sealed book
to this country.28 He reviewed the mercaniilist age when 'legions of
adventurers scattered over foreign lands to trade, but behind the display
of their wares they raised empires . . At that time India was renowned
for her immense wealth, a subject repeatedly referred to by foreign
historians in those days . . . Subsequently, king and trader met in India
and in this fateful moment began the hacking at the roots of the tree of
wealth-an off-repeated but discordant tale. But yet it will not do to
smother in utter oblivion. India had her wealth, but if we forget by what
means it was transported beyond the seas, a basic fact of modern history
will elude us."29

t. Letter of J. Tinbergen to D. Bhattacharya, Indiau Statistical Institute, dated

25th August, 1977.
2. Bruce, John, Annals af the East India Company, Vol. I. London, 1810, p.
146-165.
3. Thomas, P.J., Mercantilism and the East India Trade, London, 1926 p. 8.
4. Lord Clive's speech in the House of Commons, 30th March, 1772 London, J.
Walter, 1772.
5. Bhattacharya, Durgaprasad, "Concentration of Economic Power in Manufac-
turing Sector" (In Trends of Socio-Economic Change in India 1871-1961. Simla,
Indian Institute of Advanced Study. 1969, p. 666).
6. Moreland, W.H., From Akbar to Aurangzeb, London, 1923, p. 15.
7. Ambirajan, S., Classical Political Economy and British Rule in India. London,
1978, p. 28.
8. An Address to the Proprietors of the East India Stock by Lord Clive. London,
1764.
9. Report from the Committee of Secrecy, 1773.
10. Dow, Alexander, The History of Hindustan. Vol. III, p. LXII-LXIV (In Guha,
Ranajit: A Rule ofproperty for Bengal. New Delhi, 1981, p. 33)
11. Dow, Alexander, Ibid., p. LXVII-LXXXI (In Guha, Ranajit: Ibid., p. 34).
12. Guha, Ranajit, Ibid., p. 131-32.
13. "Ganguli, B.N. Dadabhai Naoroji and the Mechanism of External Drain"
(In The Indian Economic and Social History Review, Vol. II, No. 2, April 1965).
p. 89.
14. Burke, Edmund, Ninth Report from the Select Committee, London, 1783, p.
14-16.

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 SOME ASPECTS OF THE ECONOMIC DRAIN FROM INDIA 47

15. Burke, Edmund, Ibid., Appendix 6.

16. Third Report from the Committee of Secrecy, London, 1773, p. 60-61,
17. Sarkar, Susobhan Chandra, Rammohan Roy on Indian Economy, Calcutta, 1965,
p. 18, 74-79.
18. Martin, R.M., The History, Antiquities, Topography and Statistics of Eastern
India, Vol. I, London, 1838, p. XII.
19. Bhattacharya, Durgaprasad and Bhattacharya, Archana, Economic Writings in
Bengali, 1818-1947, Calcutta, 1981, p. 6-8.
20. Somprakas, Vol. 24, No. 25. 2nd May, 1981, p. 387-88.
21. Somprakas, Vol. 26, No. 12, 6th February, 1882.
22. Chattopadhyay, Bankim Chandra, Bankim Rachanasamgraha, Saksharata
Prakashan, Calcutta, 1973. Prabandha Khanda, Vol. I, p. 306.
23. Ganguli, B.N.; Ibid., p. 91.
24. Mukhopadhya, Bhudev, Samajik Prabandha, 1892, p. 193.
25. Dutt, Ramesh, Economic History of India, Vol. I, New Delhi, 1960. XXIX,
p. 284.
26. Digby, William, Prosperous British India, London, Fisher Unwin, 1901. p. 81.
27. Deuskar, Sakharam Ganesh, Desher Katha. Calcutta, 1311 B.S. p. 90, 141-44.
28. Tagore, Rabindra Nath, Crisis in Civilisation, Calcutta, 1941. Reprinted in
June 1978.

29. Tagore, Rabindra Nath, Letters from Russia, Tr. Sashadhar Singha. Calcutta,
1960, p. 97-99,

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