[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

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A major critique of the drain by the Nationalists was built around the issue of invisibles. This formed the core of the drain theory of the Nationalists [40]. This related to the transfer of money from India on several accounts like - home charges (expenses of Indian Government in Britain). This included the money that was charged on India for maintenance of offices like that of Secretary of State in England. Also were included the transfer of money on account of salaries, pensions and savings sent to Britain by Britishers living in India; remittances of profits by merchants; dividend to the shareholders of the EIC from the coffers of the territorial revenue of the country.

While the Charter Act 1833 deprived the company of its monopolist trader status, the entire burden was shifted on to the territorial revenue of the country. While this may be understood in some respect as successor power-arrangement [41]inheriting the liabilities, what defies understanding is that the Act would also make provision for the shareholders of EIC, who were promised 10 ½ % as annual dividend for a further period of fifty years. And as a compensation for its loss of trading interests, EIC was offered a lump sum of 90 million pound sterling [42]. This way, “The Charter Act of 1833 provided for an annual dividend of £ 630,000 to be paid to the shareholders of the Company out of the Indian revenues till 1874. In 1874, the loan of £ 4.5 million was raised to redeem the stock at a premium of 100 percent.” [43]

In the gradual way in which the Britain developed the bureaucracy and the superstructure of government in India, the most significant thing was that Indians were nearly denied participation in the higher positions of civil bureaucracy and the army. G.K. Gokhale’s deposition to Royal Commission on Expenditure (1895-97), (based on Parliamentary return of May 1892) regarding the personnel in the high offices [44] clearly delineates this anomaly.

The money on these heads gradually got transferred out from India, without India deriving any benefit- except political subjugation on these heads. This drain took the form of excess of exports over imports. These exports were consequent to the changed pattern of international trade that was now being conducted from India. Instead of India exporting finished goods, India had now become an exporter of raw materials that fed the expanding operations of the British industries. “According to the nationalist calculations, this drain amounted to one-half of government revenues, more than the entire land revenue collection, and over one-third of India’s total savings.” [45]

This would by 20^th century as well add into its heads interests on foreign capital, banking commissions, freight and passenger carriage etc. These were transferred via the trading structure and financial system. This was consequent to the peculiar form of trading and financial institutions that developed by the early 20^th century. Britain owned the shipping, banking, insurance, and the different agencies through which the trade was conducted. This system functioned via the managing agency system. These were agencies that would provide a one-stop solution to all trading requirements. These Agencies had become powerful in their own right and charged high commission and share of profits. These commission and other remittances went directly to British coffers Sumit Sarkar, writes that under managing agency system “the tendency was at best towards creating capitalist enclaves under foreign control which really inhibited the development of the rest of the economy” [46]

Another important area of change in the economic system, brought about by imperialism was commercialisation of agriculture. This involved conversion of farms into areas of production for raw materials for distant lands. Most important of these was of-course cotton production. Another important area related to the Plantations that had indigo, tea, jute, tobacco, etc. Tea and jute were monopolised by European planters. Indigo was introduced as a measure to substitute calicos, whose import to England was being opposed by the Cotton lobbyists [47]. The European planters forced indigo plantation on local farmers. In most of the cases, this meant that the cultivators were forced to assign a certain part of their fields to indigo cultivation in consideration of a forced contract. The farmers were forced, against their will, to take small amount of loans and bound into a contract. However, this did not mean that the cost of cultivation was being borne by the European planter. All the equipments, livestock etc were those that were used by the cultivator for his own use. So, this also meant that in real terms there was not any net addition to the ancillary economic activity. This can as well be seen as a situation in which the European Planter was using the resources of the native without actually putting in the investment in land or equipment. And if the cultivator protested, the officials and the courts supported the European planters. The Charter Act of 1833 gave the Europeans rights in ownership of land and full freedom of contract [48].

Similarly in the tea plantations, the Europeans would get many concessions in form of large tracts of land at nominal prices [49], concessions in taxation and powers akin to criminal justice. Assam wasteland rules provided for grant of land upto 3000 acres per holder as freehold property exempt from land tax. Act 13 of 1859 and Inland Immigration Act of 1882 made breach of contract a criminal offence and authorised the tea planters to arrest a run away labourer without any warrant.

Commercialisation led to dependence on the foreign market increased and the risk of fluctuation that was inherent was to be finally borne by the cultivators. This is fairly demonstrated by the Deccan Agrarian disturbances of 1870s. In this, the demand for cotton during the 1860s from India increased because of the ensuing civil war in USA. During these prosperity years, the government also revised the revenues taking these prosperity year statistics to be the standard [50]. But since the cotton boom was temporary, the prices crashed after the civil war in USA was over. This led to complete desperation in the Deccan cotton belt. As these were the ryotwari areas of direct settlement, the cultivators had to take loans from local moneylenders to pay their revenue demand. All these led to increased control of moneylenders on the cultivators’ lands. All these led to considerable distress and disturbances. At one level this would seem a fairly innocuous working of the market principles. But at another level, this was caused by the kind of economic structures that the imperial government had introduced in the country.

The commercialisation of agriculture was largely meant for foreign market and consequently led to neglect of production of food crops. The estimates of D. Thorner reveal the following figures [51]:

Three things become fairly clear - ONE, the avenues of value addition had been systematically removed from the country. TWO, the money that were going out on various heads- had they remained in the country, then they could create a ripple effect in the economy and lead to expansion of the economy. THREE, an expanding economy with capital accumulation would induce technological innovations in the system. This was not happening, because the wealth that was being drained out was adding into the economic expansion of the imperialist country. This also made it possible for Britain to absorb technologies into its economic processes. This also had the effect of increasing the power of the imperial nation. The colony itself was deriving no benefit out of its own resources that it was generating.

The nature of economic relation between India and Britain was also undergoing continuous modifications. This was prompted by the changing requirements of Britain for its progressing industrialisation. Consequently by Charter of 1813, the monopoly status of EIC with regard to India came to an end. Within twenty years, by the 1833 charter, even the trading status of EIC with regard to India came to an end, and it remained only a territorial agent of British sovereign. Such changes opened up India to free trade regime and newer areas of drain. This was most achieved through the route of tariff differentiation. Tariff discrimination had come into existence early in the first half of the nineteenth century. “In the parliamentary enquiry of 1840 it was reported that while British cotton and silk goods imported into India paid a duty of 3 ½ per cent and woollen goods 2 per cent, Indian cotton goods imported into Britain paid 10 per cent, silk goods 20 per cent and woollen goods 30 per cent.” [52] The drain was most visible in growing export surplus by which the home charges and other remittances was transferred to Britain.

The army itself was another factor of this drain. The defence expenditure by the colonial regime in India was far higher in ratio than that in England. By 1904-5 the figure had reached 51.9 percent of the expenditure of the government of India that was in sharp contrast to the amount spent on this head by Britain itself. The reason was quite obvious. India was spending this amount for Britain and not for itself. Army from India was used in distant foreign expeditions ranging from China to Middle East to Africa to Europe- and all these had no bearing with India, but only with the imperial interests of Britain. Now while the army would fight for the imperial interests in far off lands- that only served the imperial interests of Britain, the cost of such wars was borne by the Government of India, whose ultimate burden fell on the people of India. To the Royal Commission on Expenditure (1895-97) Lord Northbrook would say, “The English Government were put to very considerable cost, and we thought that India would be put to a small cost, and we thought she might very well pay the small cost of the troops sent to Suez. However, the operation became very extended, and it ended in the expedition from India becoming a large expedition. The whole cost was I think £ 1,700,000 and the ultimate arrangement made between the two Governments, the Government of India and the Government of England, was that India pay £ 1,200,000, and England paid £ 500,000.” While Henry Brackenbury would say, “The strength of the army in India is calculated to allow of a powerful field army being placed on or beyond the Indian frontier, in addition to the obligatory garrisons required for keeping order in India…The foreign policy of India is directed entirely from England by her Majesty’s Government, and it is part of British foreign policy generally. The object of British foreign policy generally, I believe is to secure British rule over British Empire…I cannot but feel that Britain’s interest in keeping India under British rule is enormous. India affords employment to thousands of Britons; India employs millions of British capital…Therefore it seems to me that India, being held by Great Britain, not only for India’s sake, but also for Great Britain’s sake, Great Britain should pay a share of the expenditure for this purpose…” [53] The army was also skewed in its personnel policies. Indians were not recruited for the higher jobs. They served only the lower levels.

Why was the drain a drain?

Whenever there is an economic exchange, the exchange takes place at parity. This parity is based on certain norms acceptable to the parties involved in the exchange. Many times, the exchange may be unequal. Some of this can be derived from positions like the power that is exercised by a monopolist. Many times, this unequal exchange can even be negative where one party would use its privileged position to dictate terms of exchange. But all this relates to a situation that takes into account ‘ceteris-paribus’.

In contrast to this, there are situations, where one party to exchange would use its privileged position and extra-situational variables (particularly political factors) to induce changes in the structure of economy itself. This change of structure leads to the situation where the exchange transcends that of an unequal exchange. The exchange transforms into a system of continuous one-way flow of resources. This transfer of resources is without any benefit to one side. This leads to a situation of drain and exploitation. The structures are not only geared so as to benefit the recipient on a continuous basis, but are also controlled by the beneficiary by use of policy mechanism and administrative action.

This had impact on various dimensions of political economy. Its economic consequences included increasing poverty, occupational shift from craft to agriculture, stagnant per capita income, declining population, de-urbanisation, and also harm to potential economic development. This harm to potential economic development led to creation of Dependency in the future. Such Dependency is also visible in various third world economies, and continues in the situation of the current Globalisation. Such issues of economic drain could even be seen in the context of countries colonised in Africa. Eventhough such themes were discussed in African countries, there seems that a systematic theorisation did not take place in the African context prior to independence movements in its various countries. Much of the debate took place on such issues in the context of Dependency theoretical framework later on during the decades of sixties. However, in India, which had been longer in the colonised setup and this theorisation and realisation of hard Economics was more systematically written, it formed the ground on which the freedom movement could have firm foundation. However apart from this, even in the colonial context of America vis-à-vis Britain there existed such issues like goods could be sold only to English merchants, and foreign goods could be bought only after paying duties at English ports. However America fought and won its independence much earlier and escaped the creation of such exploitative structures. In India’s case, the colonial period was much overdrawn and led to creation of such structures of economic drain. The point to note is that such issues could emerge in any context of imperial-colonial relations. It is existence of such structures that creates an imperial-colonial relation that provides benefits to only one of them. If such structure would exist even in absence of a formal control over territories, even then such issues would come up, though such aspects are beyond the scope of this essay.

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