The harmful effect of the British colonialism and economic exploitation of India was the Drain of Wealth. It means the flow of wealth from India to England without adequate economic or material return.
This was the dangerous symptom of the British colonialism. Never before the British rule, had India experienced such a harmful effect that broke the economic backbone of the country. Prior to the English, India had been ruled by the foreigners like the Kushanas, Turko-Afghans and Mughals.
Each one of those ruling dynasties gradually got assimilated with Indian society and culture. They not only formed the integral part of India but also protected and promoted Indian society, culture and economy. None of the above rulers carried wealth or resources from India to any other country.
Revenue collected or wealth acquired by them was spent within India for various purposes. The revenue was either spent for the public welfare or for the state or for personal luxury, it remained within the country.
The revenue was circulated as wages in lieu of employment or labour. It ultimately encouraged Indian trade and industry. Peculiarly the British remained alienated from the Indian society and culture. They were isolated from the mainstream of Indian life and formed a separate class of their own within India.
They continued to remain perpetual foreigners in India till they left this country and never thought India as their home as was done by earlier rulers. Therefore, their property or wealth became the wealth of England and when the English merchants as well as administrators left India, they carried the wealth with them.
Even the Government of Britain considered the profits of the company, the savings of its servants and the revenue of the Government of India as the rightful wealth of England. Therefore, large part of taxes and revenue collected from the Indian people was spent in Britain for prosperity of Britain.
As a result, one way flow of wealth continued till independence of India. “The Drain of Wealth” as called by Dadabhai Naroji in his masterpiece “Poverty and un-British Rule in India” was the cause of poverty in India.
Further Indian economy became subordinated to the British trade and industry. The British intentionally kept India industrially backward and Indian markets depended on the supplies from the British industries. In addition, export of raw materials from India accelerated the drain of wealth. No less costly was meeting the expenses of administration and conquests. It is not wrong to say that the British conquered India by spending Indian Wealth.
The drain started from the very first day of the Company’s Rule in 1757. The servants of the company dispatched from India immense fortunes acquired by various means both legal and illegal. The trading profits of the company when added to personal property of its servants became an astronomical figure.
After 1765, the company was directly involved in the drain. It purchased Indian goods, specifically raw materials, out of the revenue of Bengal and exported those to England. Such purchases were called “Investments” and the drain continued in the shape of “Investments”.
The amount of wealth drained increased when salaries and other income of the officials and the trading profits of the merchants flew to England. It was admitted that India was, “required to transmit annually to this country, without any return except in the small value of military you stores, a sum amounting to between two and three million sterling.” The quantum of wealth drain, though calculated differently, was a huge amount. Between 1758 and 1765, amount drained was more than four times of the total land revenue of Bengal.
“The drain of Wealth” gave deadly blow to the economy of India and obstructed economic progress. It promoted the British economy at the expense of Indian economy. As it halted industrial development in India, there remained little or no scope for investment in India for rich landlords and businessmen.
As the savings or surplus money flew to England, there was no chance for capital formation in India. This prevented the installation of industry by any Indian. Consequently, all to switch to cultivation and ultimately agriculture was over crowded.
This increased agricultural laborers and the impoverishment of the peasants. Thus, once rich India became poverty stricken India under the British rule.