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Drain of Wealth, Theory, History, Process, Causes and Impact

Drain of Wealth

Read all about Drain of Wealth. The steady movement of national wealth from India to England, for which India received insufficient economic, commercial, or material returns, has been referred to as the “drain of wealth theory.” The phrase “economic outflow” refers to a percentage of India’s national output that was being diverted to Britain for political reasons rather than being consumed by its citizens since India was not receiving enough economic input from that country.

The first person to bring up the problem of resource flow from India to England was Dadabhai Naoroji in his book “Poverty and Un-British Rule in India,” which was released in 1871. The British syphoning method used to syphon off India’s resources and riches has been nicknamed “The Economic Drain” by economists like R.C. Dutt, Dadabhai Naoroji, and others. You will learn about the “drain of wealth” hypothesis in this piece, which will help you prepare for the UPSC Civil Service Exam with regard to Modern Indian History.

Drain of Wealth History

One characteristic of the colonial era was the exploitation of Indian resources. The main reason Britain invaded India was to control a reliable supply of cheap raw materials to support its own industrial base there. Indians’ income was used to purchase expensive finished items that were imported from Britain, which helped Britain become wealthier at India’s expense.

In addition, the British government expanded its colonial influence outside of India by using Indian labor. Indian soldiers in the British army received lower pay than their British colleagues. Revenue from India and the export surplus produced by India’s overseas trade were used to fund the British Government’s military and administrative costs to govern colonial control in India. British rule as a result plundered Indian wealth for its own purposes.

Drain of Wealth Process

The money taken in from India was used to pay the salaries and pensions of British civil and military employees there, the interest on government-issued loans, and the profits of British business people there. One way that money was being taken out of India was through this. The surplus of exports over imports, for which India received no financial or material advantage, was how the drain appeared.

The colonial form of administration included remittances made to England by European workers for the upkeep of their families and the education of their kids. Because they wanted to invest at home, East India Company employees sent funds to the company. Purchases of British goods in India as well as remittances for the purchase of British goods requested by British employees.

The government bought British-made goods for its outlets. Interest rates on the country of Britain’s public debt (which excluded interest payment on railway loans and other debts incurred for productive works). Private riches acquired by the Company’s employees through illegitimate gifts and perquisites from Indian kings and other Bengal residents. Participating in the inland commerce allowed corporate employees to make a significant amount of money.

In their quest for control against a competing claimant, the Indian Princes received military support from the East India Company. Many of these funds wound up in the hands of British residents. The major objective of British policy in India, according to economic nationalists, was to make it a lucrative market for the home country and a source of inexpensive and secure raw material-producing agrarian nations.

Drain of Wealth Causes

India is subject to foreign governance and administration. Immigration brought the money and labor required for economic progress, but India did not attract immigrants. India covered all of Britain’s expenses for the civil government and military. India was responsible for expanding its territory both inside and outside of its borders.

India was abused more after it allowed free commerce. Foreigners made up the majority of India’s income during British rule. They never made investments in India with the money they made. India provided Britain with numerous services, including roads, trains, and other infrastructure, for a significant sum. With such cash, the East India Company imported goods from India and exported them to Britain.

Drain of Wealth Impact

These resources, which could have been used to invest in India, were mostly stolen and diverted to England. India’s citizens have to bear a heavier, extremely regressive tax burden as a result of the government’s enormous public debt and interest payments. The tax burden in India in 1886 was estimated by Dadabhai Naoroji to be 14.3% of total income, which was much greater than the 6.93% in England.

Instead of going toward social services and welfare for Indians, the majority of these tax proceeds were utilized to settle British debt. India’s trade, industry, and agricultural sectors suffered due to this type of drain on tax revenue, which was a major factor in the nation’s economic stagnation in the 18th and 19th centuries.

Since most of the surplus was exported, the wealth drain hindered capital development in India, but the British economy grew more quickly with the same amount of wealth. The British economy’s surplus was funneled back into India as financial capital, severely depleting its resources. This had a significant impact on India’s revenue and employment prospects.

India’s productive capital was effectively reduced by the drain, creating a capital shortfall that slowed down industrial growth. Although the British took on the duty of upholding law and order, centralising political and judicial administration, building roads and trains, etc., the extent of resource depletion was excessive, which caused the economy to stagnate.

According to Dadabhai Naoroji, what was being sucked out was “potential surplus” that, if invested in India, could lead to increased economic growth.

Drain of Wealth Theory by Dadabhai Naroji

In the early days of the study of colonialism and poverty, Dadabhai Naoroji was a pioneer. He was persuaded that colonial control, which was robbing India of its richness and prosperity, was the primary cause of poverty. The share of India’s wealth and economy that foreigners monopolised was the source of the wealth drain.

The Drain of Wealth idea was first put forth by Dadabhai Naoroji in 1867. It has been further analysed and developed by other academics, including R.P. Dutt and MG Ranade. The “economic imperialism” theory, first forth by Dadabhai Naoroji in 1867, contends that British economic policies are utterly draining India. He made reference to this notion, often known as the “Drain Theory,” in his book Poverty and Un-British Rule in India.

He questioned the fact that almost one-fourth of the income collected in India are sent to England, which is the biggest contributor to India’s poverty.

Drain of Wealth Theory UPSC

According to the theory known as the “Drain of Wealth,” a nation’s economy may suffer if important assets like cash and goods leave the nation. This hypothesis is also known as “capital flight.” This happens when Britain decides to take India’s assets and stocks and use them for the benefit of their own nation. The growth of India was adversely affected by the wealth drain.

Major Incidents in Indian History

  1. Quit India Movement
  2. Chauri Chaura Incident
  3. Jallianwala Bagh Massacre
  4. Green Revolution in India
  5. Non-Cooperation Movement

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Who gave the theory of drain of wealth?

In his "drain of wealth" argument, Dadabhai Naoroji claimed that Britain was utterly emptying India of its wealth.

What is drain of wealth and its impact?

According to the theory known as the "Drain of Wealth," a nation's economy may suffer if important assets like cash and goods leave the nation. This idea is also known as "capital flight."

What are the causes of drain of wealth in India?

India was responsible for both internal and external territory expansion. India was abused more more after it allowed free commerce. Foreigners made up the majority of India's income during British rule. They never invested their earnings in India.

What do you mean by drain of wealth?

Drain of wealth from India has been used to characterise the ongoing wealth transfer from India to England for which India did not receive an appropriate economic, commercial, or material return. The "drain of wealth theory" was presented by Dadabhai Naoroji in his book "Poverty and Un-British Rule in India."

Who drained the wealth of India?

Dadabhai Naoroji developed the hypothesis of the wealth drain in the 19th century. The British used India as a source of cheap raw materials for their own businesses during the colonial era, and their main reason for conquering it was to do so.

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