Question

The ‘Economic Drain Theory’ put forward by early nationalist helped to explain the British exploitation of India. What was ‘economic Drain Theory? How did it impact India?

Answer 1

Approach:

• Highlight what is meant by drain of wealth and its components.
• Explain how it impacted the Indian society and economy.
• Conclude by highlighting how early nationalists highlighted that to the masses.

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 or material returns for it. The drain theory was put forward by Dadabhai Naoroji in his book Poverty and UnBritish Rule in India.

The major components of this drain were salaries and pensions of civil and military officials, interests on loans taken by the Indian Government from abroad, profits on foreign investment in India, stores purchased in Britain for civil and military departments, payments to be made for shipping, banking and insurance services which stunted the growth of Indian enterprise in these services.

Economic Drain and its impact

• Retarded capital formation: The drain of wealth checked and retarded capital formation in India as most of the surplus went outside the country while the same portion of wealth accelerated the growth of British economy.
• The surplus from British economy re-entered India as finance capital, further draining India of its wealth.
• This had an immense effect on income and employment potential within India.

The essence of nineteenth century colonialism, they said, lay in the transformation of India into a supplier of foodstuffs and raw-materials to the metropolis, a market for metropolitan manufacturers and a field for the investment of British capital. These early nationalist analysts organized intellectual agitations and advocated a complete severance of India’s economic subservience to Britain and the development of an independent economy based on modern industries.