[This essay Some Thoughts on The Drain of Wealth: Colonial India and Imperial Britain was published in the World History Bulletin (WHB) Spring 2004 (Vol XX No1). The WHB is published by World History Association (WHA), USA]
© Anup Mukherjee
The Drain of Wealth Theory:
The Drain of Wealth theory is a set of perspective that developed in the latter half of nineteenth century and reflected the adverse impact of economic colonisation of India by British imperialism. This concept was systematically initiated by Dadabhai Naoroji in 1867 and further analysed and developed by others, most notably- M.G. Ranade, R.C. Dutt and William Digby. Others also contributed, notably, G.V. Joshi, G. Subramaniya Iyer, G.K. Gokhale, P.C. Ray and many others. This formed an issue of much excitement among the political workers and the different streams of anti imperial movements in India would consider this as the basis and rationale on which they needed to severe their political relation with Britain. The entire range of political issues was dissected as an omnibus critique of the imperial rule. Whether it be the Gandhians or the Leftists or the Revolutionaries, this Drain of Wealth thesis was acceptable by them all. Interestingly, this Drain of Wealth though an economic critique was not a Marxist critique. Indian Marxists added their own perspective later on and derived much of the issues from the observations of Marx in the Capital and other writings on India. Also, it was developed prior to emergence of any systematic anti imperial political movement in the country. The Drain of Wealth approach also got popularity as a reaction to the supposed benevolence of British rule that many British scholars and administrators [1] would speak about. This difference in approach can be classified as nationalist (or anti-imperialist) school and the imperialist school [2]. Scholars who critiqued the nationalist approach included L.C.A. Knowles and V. Anstey. This imperialist school is now more popularly called the Cambridge School and it views the economic dimensions of British rule favourably and the imperialist process as beneficial to the colony. This debate has further aggravated with micro studies and newer analysis. This essay would take a perspective that tries to correlate the issues of Economics, commerce and technology within the framework of economic relations deriving out of colonial India and imperial Britain.
British Power in India:
The British East India Company (EIC) was a monopoly company and received charter of its operation from the sovereign, the company itself was an extended arm of the sovereign. Though such trade companies cannot be given the canopy of the sovereign as some scholars have argued [3], but it was a delegated power that was assigned by the charter. And because of the monopoly aspect, it can even be argued that these European companies were not just for trade but also an extended arm of their respective governments either directly or indirectly fulfilling the goals of their government vis-à-vis their rival nation-states in Europe. Though it was a private company, in the framework of mercantilism, the British EIC could even be termed a government enterprise. Apart from the Charters, this was particularly true from the times of Regulating Act (1773) onwards, when the British government came to have an important say in the affairs of the EIC.
From India’s point of view, it was Plassey (1757) that became most significant. It was here that EIC came to have trappings of a territorial power. After battle of Buxar (1764), it also took control over the Diwani rights (right to collect land revenue) of the province of Bengal. This arrangement continued under the system of Dual Government (1765-72) that was introduced by Clive. Finally under Hastings, the EIC took over complete control of administration (1772).
Components of Drain:
The Drain of Wealth from India took different forms over the period of time. Over time, the nature of British rule evolved from that of a merchant company to that of a sovereign and structure of trade from monopoly trade to free trade. The profit making interests of EIC gradually got subsumed to the requirements of industrialisation in Britain. Consequently the nature of drain also kept transforming.
It started with the case of EIC, using the territorial revenue to buy goods from Bengal (late 18th cen) and selling them in Europe to make its profit. The territorial revenue was enhanced considerably in the very initial years of the EIC’s rule. “In the last year of administration of the last Indian ruler of Bengal, in 1764-65, the land revenue realised was £ 817,000. In the first year of Company’s administration, in 1765-6, the land revenue realised in Bengal was £ 1,470,000. By 1771-2, it was £ 2,341,000, and by 1775-6 it was £ 2,818,000″ [4]. The land revenue was finally fixed under scheme of Permanent Settlement of Lord Cornwallis in 1793, when it was fixed at £ 3,400,000. Such usage of territorial revenue in buying the goods was considered ‘investment’ in Bengal. Thus the money farmed in Bengal ended up in Europe as a form of tribute. Adam Smith would write on EIC as, “…the mercantile company which oppresses and domineers in the East Indies…” [5]. The EIC would enrich itself without adding anything as investment and make the profit for itself.
The 1770s was a period of famine for Bengal, and it was aggravated by such exaggerated demands by the EIC. It is interesting to note what Abbe Raynal wrote relating to the Bengal famine of 1770-71. According to him, the chief agent of the East India Company and the Council of Calcutta ‘kept locked up in their magazine a part of the harvest, and carried on the most odious and the most criminal of all monopolies’ [6]. And despite of that, the company continued to increase the land revenue. And if all this was not enough, the EIC even manipulated the value of currency to its advantage by undervaluing and over pricing its currency. This happened in the way whereby the EIC would “struck gold rupees to the amount of about 15 million nominal value but which represented in fact only 9 million, so that four-tenths or something more was alloy” [7]. All these also led to decline in the standard of living of the people, ‘especially marked in the diminution of consumption of ghee, oil, salt and sugar that were cheap formerly relatively to both money and cereals’ [8].
Before the British, land itself was not an economic resource – ‘the ruler and the villager were interested principally in the use of land and neither was worried about its ownership’ [9]. The EIC introduced the component of ownership in land. This was coupled with various experiments for tax collection that replaced the customary dues. In Bengal a series of experiments were initiated and different theoretical justifications were given to legitimise such systems. Warren Hastings (1772-85) assumed that all land belonged to the sovereign, leading to a system of farming of revenues by auctioning the revenue collection to the highest bidder. This led to havoc in the Bengal countryside [10]. If the old zamindar failed to get the lands in the auctions, he would be turned out from his estates. These auctions were for farming of revenues, and did not give ownership rights to the winning bidder. If the bidder failed to collect the EIC determined high land revenue from the cultivator, the bidder would be turned out. This led to institutional plunder of the farmlands. The system failed and led to misery and depopulation. The land revenues failed, however, in spite of the utmost coercion. In a minute of September 18, 1789, Lord Cornwallis remarked, “I may safely assert that one-third of the Company’s territory in Hindustan is now a jungle inhabited only by wild beasts.”
Cornwallis on his appointment took a completely different view of the issue. His view was that it was the zamindar and not the sovereign who was the proprietor of the land. This concept formed the basis of the Permanent Settlement. Interestingly enough while the Utilitarians would speak of a competitive society and individual rights, in case of India, James Mill would propose that in India’s case, the “State should remain as the landlord and that each peasant should hold directly from the State as its tenant.” [11] Rather than going into the ideological debates concerning rent etc, like those of Ricardo, Malthus and others that were in some ways influential in India’s context, lets continue with our narrative.
The land revenue system emerged as a consequence of experiments. Three systems of land revenue emerged in different parts of British territory in India – Permanent Settlement (or Zamindari), Ryotwari and Mahalwari. But whatever be the legitimising credo, the tax on the land went on continuous increase. Very often subsuming the economic rent and leading to a situation of less than subsistence for the farmers. Under the Permanent Settlement, this meant fragmentation of land and creation of multiple intermediaries. Usually, the large estate would be partitioned into chain of multiple intermediaries leading to fragmentation of land to the extent that “by the late nineteenth century 88.5% of the 110,456 permanently settled estates of Bengal and Bihar were less than 500 acres in size” [12] This also meant that the actual producers were too oppressed and burdened with the revenue demands that they could not go for improvements. And on the other hand, it also created a hierarchy of rentiers who would be dependent on the revenue derived from the primary producers. This led to a situation where the entrepreneurial spirit was institutionally destroyed. This meant that a middle class could not come up as the society was divided into chain of revenue rentiers and cultivators.
In the Ryotwari areas, under the experimentation of Munroe, the British itself extracted the surplus directly from the farmers. This problem was sought to be rectified on the basis of traditions of common ownership of land in the Mahalwari system that was introduced in the northern provinces. However being badly administered it led to similar problems for the cultivators. By the Saharanpur Rules of 1855 the Government demand was limited to one-half of rental but it was later interpreted to mean one-half of ‘the prospective and potential’ rental of estates [13]. This meant that if an estate had a rental of £ 1000 a year, then the claim of government could be £ 600 on the ground that the rental might rise to £ 1200 in the coming year. This issue got further compounded by the additional tax burden on the people on other heads of government like education, post offices etc.
Consequences to such experiments were disastrous. In Zamindari areas, agricultural production suffered and agricultural prices fell [14]. Cultivators were unable to pay revenue, thus leading to large number of land alienation. It also meant that very often the cultivators were ejected from their lands. But now as land itself had become a commodity, the cultivators unlike previous times, could not find new land to re-settle. There was an increasing incidence of famines and to a large extent the famine was consequence of EIC policy.
In Ryotwari areas, since the cultivators were under heavy tax burden, they had to resort to loans from local moneylenders and thus fall into further penury [15]. In such case, in areas like Madras province, the price of land declined so that it was not seen as a profitable investment avenue. But when the over-assessment was reduced in the latter half of 19th century, similar to the Zamindari areas, the Madras cultivator would often hire out his land (Dharma Kumar, 1965). While in areas of Deccan, because of inability of ryots
(cultivators) to pay back the debt led to alienation of land by the moneylenders. This was particularly perceptible in the post 1860 cotton boom phase, when the international cotton prices crashed consequent to the end of American Civil War. Cultivators would be going into indebtedness in other areas as well, like that in Punjab [16].
