Write on 'Drain Theory' as developed by Dadabhai Naoraji. How does it explain sustained poverty during the British Rule in India?

The Drain Theory: Core Components

The Drain Theory, as conceptualized by Naoroji, wasn’t a single mechanism but a combination of factors that led to the outflow of wealth from India to Britain. These can be broadly categorized as:

• Drain of Surplus Revenue: Naoroji argued that the British administration extracted more revenue from India than was necessary for its administration. This surplus was not invested in India’s development but was remitted to Britain.
• Drain of Interest on Public Debt: The British government incurred substantial debt in India, and the interest payments on this debt were a significant drain on Indian resources. This interest was paid to British creditors.
• Drain of Salaries and Pensions: A large number of British officials were employed in India, and their salaries and pensions were paid from Indian revenue and remitted to Britain.
• Drain of Profits: Profits earned by British companies operating in India were repatriated to Britain, further contributing to the outflow of wealth.
• Home Charges: This included expenses incurred in Britain for the administration of India, such as military expenditure and the cost of maintaining the India Office in London.
• Drain of Wealth due to unfavorable Terms of Trade: India was forced to export raw materials at low prices and import finished goods from Britain at high prices, leading to a trade imbalance and a drain of wealth.

Mechanisms of the Drain

The drain wasn’t simply a matter of money flowing out. It operated through several interconnected mechanisms:

• De-industrialization: British policies, such as high tariffs on Indian textiles and promotion of British industries, led to the decline of traditional Indian industries, particularly the textile industry. This resulted in unemployment and reduced income for Indian artisans.
• Land Revenue Systems: The introduction of new land revenue systems, such as the Permanent Settlement, Zamindari system, and Ryotwari system, often led to excessive taxation and landlessness among peasants.
• Currency Manipulation: The British government manipulated the exchange rate between the rupee and the pound, which further facilitated the drain of wealth.
• Railways and Infrastructure: While railways were built, their primary purpose was to facilitate the transport of raw materials to ports for export to Britain, rather than to promote internal trade and development.

Impact on Sustained Poverty

The Drain Theory explains sustained poverty in India during British rule in several ways:

• Reduced Capital Formation: The outflow of wealth reduced the amount of capital available for investment in India, hindering economic growth and development.
• Increased Dependence on Agriculture: The decline of industries forced a large section of the population to rely on agriculture, leading to increased pressure on land and widespread rural poverty.
• Famines and Food Security: The drain of wealth exacerbated the impact of famines, as the government lacked the resources to provide adequate relief. The Great Bengal Famine of 1770 and subsequent famines are stark examples.
• Stunted Economic Growth: The drain prevented India from accumulating capital and developing its own industries, leading to a long-term stagnation of the economy.

Naoroji estimated the annual drain to be between £300-£400 million (as of 1901), a substantial sum at the time. While precise quantification remains debated, the core argument of systematic wealth extraction remains a powerful explanation for India’s economic plight under British rule.