The constant flow of wealth from India to England for which India did not get an adequate economic, commercial or material return has been described by Indian national leaders and economists as ‘drain’ of wealth from India. The drain of wealth was interpreted as an indirect tribute extracted by imperial Britain from India year after year.

Concept of Economic Drain: In the mercantilist concept an economic drain takes place if gold and silver flow out of the country as a consequence of an adverse balance of trade. In the 50 years before the battle of Plassey, the East India Company had imported bullion worth £ 20 million into India to balance the exports over imports from India. British mercantilists were highly critical of the trade policies of the Company. Even the British government adopted a series of measures to restrict or prohibit the imports of Indian textiles into

England. Apart from other measures, in 1720 the British government forbade the wear or use of Indian silks and calicoes in England on pain of a penalty of £ 5 for each offence on the weaver and of £ 20 on the seller. After Plassey the situation was reversed and the drain of wealth took an outward as England gradually acquired monopolistic control over the Indian economy.

After the East India Company extended its territorial aggression in India and began to administer territories and acquired control over the surplus revenues of India, the shape of drain underwent a change. Henceforth the Company had a recurring surplus which accrued from (i) profits from oppressive land revenue policy, (ii) profits from its trade resulting from monopolistic control over Indian markets, and (iii) exactions made by the Company’s officials. This entire ‘surplus’ was used by Company as and “investment” i.e. for making purchases of exportable items in India and elsewhere. Against the exports of goods made out of this ‘investment’, India did not get anything in return. This system was brought to an end by the Charter Act of 1813 when the territorial and commercial revenues of the Company were separated.


Constituents of Economic Drain:

The imperial rulers used thousand and one methods to skin the Indian cat. The Indian administration was in British hands and was conducted in a manner to sub serve the interests of England. The drain mainly consisted of the following:-

A. Home Charges:

Home charges refer to the expenditure incurred in England by the Secretary of State on behalf of India. Before the Revolt of 1857 the Home charges varied from 10% to 13% of the average revenues of India. After the Revolt the proportion shot up to 24% in the period 1897-1901. In 1901-02, the Home charges amounted to £ 17.36 million. During 1921-22, the Home charges sharply increased to 40% of the total revenue of the Central Government. The main constituents of Home charges were:-


(i) Dividend to the shareholders of the East India Company:

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%.

(ii) Interest on Public Debt rose abroad:

The East Indian Company had piled up a public debt of £ 70 million to dislodge Indian rulers from their Principalities. By 1900 the public debt had risen to £ 224 million. Part of the debt was raised for productive purposes i.e., for construction of railways, irrigation facilities and public works.


(iii) Civil and Military charges:

These included payments towards pensions and furloughs of British officers in the civil and military departments in India, Expenses on India Office establishment in London, payments to the British war office etc. All these charges were solely due to India’s subjection to foreign rule.

(iv) Store purchases in England:

The Secretary of State and the Government of India purchased stores for the Military, Civil and Marine Departments in the English market. The annual average expenditure on stores varied from 10% to 12% of the Home charges between 1861-1920


B. Interest on Foreign Capital Investments:

Interest and profits on private foreign capital were another important leakage from the national income stream. Finance capital entered the Indian market in the 20th century. During the inter- war period the payments on this account roughly varied between Rs. 30 crores to Rs. 60 crores per annum. It must be pointed out that foreign capitalists were the least interested in industrial development of India. Rather they exploited Indian resources for their own benefit and Infact thwarted indigenous capitalist enterprise by fair and foul means.

C. Foreign Banking:

Insurance and Shipping Companies: For banking, insurance and shipping services India had to make huge payments. Apart from constituting a drain on Indian resources, unrestricted activities of these foreign companies stunted the growth of Indian enterprise in these spheres.