Consentia on Law - VOl - II

Drain of Wealth from India during the British Rule


It is a well-known fact that the British ruled India for well over 300 years. During their long and illustrious rule over the vast territories of India, they gained a lot and they gave a lot too.

India in its present situation owes a lot to Great Britain for the level of industrial development that exists in India today and the systems of education, administration etc. that exist in India today. There is no doubt that even something as elementary as the judicial system of India is borrowed from the English system and that our laws themselves are based on English laws.

However, a point to be pondered about is the nature of treatment that the British meted out to India and Indians. After all, the British conquered India with a reason and the reason is pretty clear that the wealth and riches of India were too much for a great industrial power like England to resist at that point of time. The British were ready to do anything possible in order to obtain the riches of India.

They thus followed an elaborate plan of action in order to strip India of its wealth and to equip Britain with the very best of the raw materials and riches. This is what is referred to as the ‘Drain of Wealth’ from India by the British.


This project work is descriptive-cum-analytical in approach. It is largely based on secondary & electronic sources of data. Books & other references as guided by faculty of Economics are primarily helpful for the completion of this project.


This project essentially seeks to study the concept of the drain of wealth from India during the British rule. This project essentially focuses on the ‘Drain of Wealth Theory’ propounded by Dadabhai Naoroji which describes extensively the mechanism of drain from India to Britain. The researcher has also attempted to see how the drain of wealth theory is applicable in today’s world in terms of exploitation of the Third World countries.

  1. The principal objective of my research is to study the mechanism of the drain of wealth from India to Britain.
  2. Another objective of the research is to compare and contrast between the drain mechanism that existed in those time and that which exists now in the form of neo-colonialism.
  1. How did the British manage to virtually rob India of so much wealth over such a long period of time?
  2. Is the drain that took place at that time responsible for the poor economic status of India at present?
  3. Is the exploitation of Third World countries by the developed countries at present comparable to the drain of wealth by the British?


This project can broadly be divided into the following sections or chapters:-

Section 1 —    Introduction

Section 2 —    Mechanism of Drain of Wealth

Section 3 —    India in comparison to other colonies

Section 4 —    Dadabhai’s answer to his critics

Section 5 —    Case-Study

Section 6 —    The Present Day situation

Section 7 —    Conclusion

Section I

The Concept of External Drain

Dadabhai and his predecessors conceived of economic drain as an external-cum-internal drain. It was kind of built-in mechanism, which extorted the resources from a low-level colonial economy; and the surplus thus generated through a complicated process was drained out of the economy through the process of external trade, the dynamics of which was supplied by the unilateral transfer of funds in an equally complex fashion. The functioning of this mechanism of transfer of resources was uniquely determined, according to Dadabhai, by a number of objective political factors which are as follows:-

  • India being a colonial economy governed by remote control.
  • India being quite unlike white men’s colonies in the temperate zone which attracted labour as well as capital for economic development.
  • India being saddled with an expensive civil administration and an equally expensive army of occupation.
  • India being a strategic base of operations that had to bear the burden of empire building not only in India but also beyond her borders.[1]
  • Overheads of development being oriented towards strategic requirements, towards the requirements of administrative control in a vast country ruled by a handful of foreigners, towards the objective of ‘opening up the country to free trade’ – an euphemism for colonial exploitation – and towards the objective of creating highly paid jobs for foreign personnel.
  • India being a colony with a difference, public expenditure out of the proceeds of taxation and loans failed to generate as much of domestic employment and income as would have been possible if the principal income-earners had not been ‘birds of passage’, or if they had spent their incomes largely within the country or on goods and services produced within the country.

The economic drain being both an external cum internal drain, the external drain being in precarious equilibrium with the internal – one can hardly separate the two.

The concept of economic drain in the Indian context has an old lineage going back to the age of mercantilism that witnessed the early career of the British East India Company. It was said that[2]:-

“… if exports exceed the imports, it is concluded that the nation gets the treasure by the general course of trade, it being supposed that the surplus is imported in bullion and so adds to the Treasure of the Kingdom; gold and silver being taken as the measure of riches…”

Thus the drain of wealth from a country was considered unfavourable while the opposite kind of drain was considered favourable. Thomas Mun was the Director of the East India Company and was the author of the England’s Treasure by Foreign Trade. Mun wrote on the subject of trade in order to defend the activities of his own East India Company. Here was a trading company that was importing luxuries and exporting silver to pay for it, which was a definite infringement on the basic rules of mercantilism. Mun showed that both these activities being offensive apparently were good in the long run for the State. Drain of silver to the East was justifiable, because in due course more silver came back in exchange. Luxuries imported from the East could be sold in Europe at a profit and brought more in silver than was drained away in the first instance. If luxury imports by the East India Company were stopped, foreigners would supply the demand at a higher cost.

While Mun believed in the drain of specie through foreign trade, it was also admitted that it would increase prices and thus he suggested the expedient of foreign lending – a policy recommendation very much in advance of contemporary thinking on international economics.

The crude concept of drain of gold and silver through the process of foreign trade gradually led to a more sensible view of the purpose of foreign trade and of the balance of payments including ‘capital’ and ‘service’ items.

It eventually became clear to practical traders that an export of bullion could co-exist with a ‘favourable’ balance of trade and an import of bullion with an ‘unfavourable’ balance if one were to reckon with the complex, offsetting factors operating on the various elements in the balance of payments.[3]

The crude mercantilist concept of drain however, died soon. In the Indian context, Mun’s reasoning in favour of the export of silver to the East seems to have lost its force almost a century later in the early days of the East India Company’s rule in India. The basic economic situation in India had been radically transformed after 1757. A trading company had become by a curious combination, a ruling sovereign. Thus, profit making became integrated with administration which also became a means of profit making. This was the case because a trading company could not function otherwise. Abstraction of a surplus on both trade and administration – profit-making par excellence – assumed proportions which were beyond the dreams of even the most avaricious merchant adventures. The surplus had not only to be mopped up but also had also to be transferred to England. There was thus an unprecedented economic drain, sometimes in devious ways, which drew the righteous indignation of some of the early British administrators.

The reverse movement of ‘treasure’ after Plassey was an unprecedented phenomenon and it set a new pattern which attracted the attention of Dadabhai’s predecessors whom he quoted in defence of Drain theory. This pattern was distinctive in at least two ways:-

It was a long-period trend characteristic of the entire period of the British rule till the outbreak of the Second World War.

The drain eventually ceased to take the form of transfer of specie, the most general form of purchasing power that could be used for waging continual warfare in the earlier centuries.

The drain of wealth from India increasingly took the form of transfer of commodities through an export surplus which was liquidated not necessarily in the form of export of gold and silver from India. The transfer mechanism acquired a complex character that could no longer be explained in terms of crude mercantilist concepts. The so-called ‘unfavourable’ balance of England’s trade with the East, particularly India, was really accounted for by the unilateral transfer of funds. There is definite evidence that this concept was understood towards the end of the 18th century. It is this idea that is carried by the following lines[4] :-

“…the great excess of the imports over the exports in the East India trade appears as a balance against us, but this excess consisting of the produce of the Company’s Territorial Revenues, and of remittances of the fortunes acquired by individuals, instead of being unfavourable is an acquisition of so much additional wealth to our public stock…”

It was thus thought that it was possible to realise the surplus revenues from India only through trade and it was the East India Company which could provide a sure mode of remittance.[5]

The testimony of Sir John Shore in this regard is very helpful. In this testimony in his minute to the Fifth Report (1787), he said that the company was acting as both merchants and sovereign in the sense that in one capacity, it was engrossing the trade of the nation and in another capacity it was appropriating the revenues of the nation.  Thus, the remittances to Europe of revenue are made in terms of commodities of that country, which are purchased by them.[6] Speaking of the earlier character of India’s foreign trade, Sir John Shore said that European trading companies who traded with the Persian Gulf and the Far East used to bring in return goods as well as silver and gold. However, from 1765 onwards the reverse trend followed and the Company’s trade produced no equivalent returns. Thus, India’s external trade, even if it were to expand, was not expected to bring an equivalence of imports.

Added to the above, we also have the evidence provided by Lord Cornwallis, who in his minute of 1790, had specifically referred to the heavy drain of wealth. The causes of the external drain, according to him were:-

  • ‘Large annual investment’ in Europe.
  • Remittances of private fortunes for many years past, the impact of which was ‘severely felt’, at the time of writing, in the form of scarcity of specie for transactions and the consequent depression in India’s agriculture and internal trade.[7]

It may be noted that these early British commentators used certain significant concepts, such as:-

  • Trade with no equivalent returns.
  • Drain of wealth.
  • Remittance of surplus.
  • Annual tribute.

These concepts formed the core of the theory of the mechanism of external economic drain, which Dadabhai eventually formulated with the help of elaborate statistics in order to indicate the order of magnitude of the various factors involved. In the 18th century the writers dealt with here were of the types who were dealing with the phenomena of trade between the mother-country and the colony, of trade between unequal partners characterized by inequality of advantage, disparity of bargaining power and an economic relationship resting on the exploitation of a dependant colony by a strong, metropolitan power.

Dadabhai’s forte was his capacity for statistical estimation. The researcher would like to focus on the actual estimates of the drain of wealth from India to England from the beginning of the British rule right down to 1865-66.

Dadabhai compiled two series from the Parliamentary Returns of Indian Accounts. They were:-

  • Annual ‘charges in India’.
  • Annual ‘charges in England’.

Charges in India represented public expenditure. It was assumed that nearly one-tenth of  ‘Indian charges’ from 1787-88 to 1823-29, the early period of the expansion of the British empire in India, represented a number of items, which can be mentioned now in respect of which an element of drain was supposed to be involved. The proportion was assumed to be one-eighth of the subsequent period. These items were as follows:-

  • Remittances to England by European employees for the support of their families and for the education of their children.
  • Remittance of savings.
  • Remittance for the purchase of British goods for their own consumption.
  • Purchases by them in India of goods of British manufacture.
  • Purchases by Government of stores of British manufacture in India and England not included in the Home Charges.

‘Charges in England’ included interest on public debt held in India and loss in exchange, and excluded interest on railway debt and debt incurred for productive works. ‘Home Charges’ did not figure during the period 1787-88 to 1828-29. Dadabhai made a rough estimate of the wealth transferred prior to 1788. Wealth transferred during the entire period was thus taken to be equivalent to one-eighth/one-tenth of ‘charges in India’ plus ‘Charges in England’ plus an estimate of transfer prior to 1788, the aggregate being capitalized at 5 per cent to yield a final figure (including booty and other invisible elements) of not less than 150 million pound.

Dadabhai checked his estimates with the help of trade returns available for the period of about 50 years – 1814 to 1865 – taking into account exports, imports and bullion movements. His calculations gave a figure of an export surplus of 350 million pounds, after making allowance for the gross under evaluation of imports into England and over evaluation of exports to India under the current system of ‘official evaluation’ according to Dadabhai, and also after making allowance for the exports of bullion from England to India between 1843 and 1865. This figure, capitalized at 5 per cent, gave a figure of 100 million pounds to which had to be added the transfer of wealth similarly capitalized for the period prior to 1814. The final figure form the angle of trade returns was thus again in the neighbourhood of 1500 million pounds.

India’s export surplus represented payments for all kinds of invisible services rendered by the British rulers, investors, bankers and shippers. The fact that the balance of payments did contain an element, which could not be, described as a ‘tribute’, viz., the remittance of interest of loans for railways, irrigation works and other productive purposes was well known. But these loans were considered as one of the things for which India is under special obligations to England. The interest, even supposing it to be all earned by the railways, though forming part of the exports of India, is not part of the commerce of India. This clarification was unnecessary in the case of interest on unproductive debt incurred for empire building, in India and outside the borders of India, in the name of India’s defence.

Some time ago it was usual to endeavour to prove that an excess and imports of goods did not necessarily mean an exportation of bullion by alleging that the excess was balanced by the ‘invisible exports’. This was a clumsy and confusing way of treating the matter. It is tolerable with regard to the first two items of ‘cost of carriage and remittances of foreigners serving abroad, since services can be conceived as invisible exports, but it fails entirely in regard to the other three factors’.[8] The services rendered by the British cannot be considered as an ‘invisible service’. Added to that, the high salaries received by the British officials were not commensurate with the services rendered by them. Since the Indians were not associated with the public services, the railways and other undertakings in responsible positions the Englishman did not leave behind a fund of experience and knowledge, which was drained away, while the country bore the heavy burden of sterling pensions.

The drain theory had its crude exponents in his time. Keeping money or purchasing power within the country and preventing it from being drained away is a notion, which is as old as mercantilism and as old as the nationalist movement in our country. But there was something behind this evidently fallacious mercantilist formulation, which was nevertheless substantial.

However, Dadabhai grasped the underlying economic reality firmly enough. He applied the criterion of the effect of public expenditure on the generation of income and employment within the country. Exportation and importation, if they are a foreign monopoly, yield profits, which do not generate domestic incomes and employment, but generate incomes and employment abroad. The common man in India wanted to express the same idea but failed to formulate it correctly. Irrespective of whether the Englishman imported British goods for his personal consumption or bought British goods in India, or the government which bought in India or in England, stores of British manufacture, in these cases individual as well as public consumption failed to generate domestic incomes and employment. There was no offset, in the shape of the expansionary effect of public expenditure on local employment and income, for the heavy taxation borne by the poverty-stricken masses, which made extravagant public expenditure possible. Here again, there was a ‘foreign leakage’ of employment and income, which was virtually a drain.

Section III

Difference between India and other British colonies

Dadabhai endeavoured to prove that the colonial economic drain had a distinctive character in the case of India as compared to other colonies that had been developing as white man’s settlements in the temperate region. This comparison gave a historical perspective to his drain theory. He noted what the economic historians had done in the present century, viz., that the white men’s colonies had a sizeable import surplus in relation to the capital-exporting mother country. The imports of Australia, including bullion etc., during the period of 1858-67 are 309 million pounds and exports being 268 million pounds, leading to an excess of imports over exports of about 41 million pounds. The imports of Canada (including bullion) are 148 million pounds and exports were 120 million pounds, leaving an excess of imports of 28 million pounds. This import surplus was caused by heavy imports of capital for colonial economic development which generated employment and income in the colonies. Dadabhai estimated that during the same period, India’s total exports (including treasure) were about 456 million pounds and the imports were about 419 million pounds. The import value included 72 million pounds of railway loan and other forms of public debt which were not productive. If it were not for the railway imports, India’s economy would have been in a sad condition. Dadabhai was also careful to point out that the opium revenues paid by China make up about 7 million pounds for the political drain, and the rest must be withdrawn from the production every year, reducing the productive capital so much. He demonstrated that capital development in other parts of the British Empire was reflected in a high value of per capita exports whereas for India per capita exports were insignificant in value and reflected the reverse of domestic capital formation. He had no information about the foreign indebtedness of British colonies other than India, the servicing of which could be deducted from the total value of exports in order to compute what he called ‘True export trade per head’ (TETPH). It was assumed that the entire public debt was the foreign debt and that the rate of interest was 5%. Making a deduction on account of interest payment on this basis, he arrived at the following figures of the ‘True export trade per head of population’ for the year 1885:-

Region TETPH in Shillings (s.) TETPH in Pence (d.)
Australia 271 0
Natal 28 8
Cape of Good Hope 35 5
North America 70 5
West Indies 75 4
British India 3 0

Dadabhai concentrated his attention on the basic difference between India and other British colonies, viz., that, in the case of one, foreign trade was oriented towards capital development while in the other one the reverse was true except in so far as railway loans and irrigation loans were a mitigating factor. Thus, he said that it is the exhaustion caused by the drain that disables us from building our railroads, industries etc., from our own means. However, even if we did not suffer the exhaustion we could borrow money from England and the case would have that of a natural business wherein the interest thereby remitted would have nothing deplorable about it as in the case of other countries which by virtue of being undeveloped borrow from others and increase their own wealth. These may include countries such as Australia, Canada, The U.S.A. and so on and so forth.

He thus came to the conclusion that the inflow of foreign capital in the Indian context was caught in the vicious circle and was prevented from playing a constructive role which it was expected to do in a healthy state of the economy. He reiterated the fact that British India’s wealth is carried out of it and then the wealth is brought back into it in the shape of loans and for these loans, India must find interest. This is one vicious circle.

Although he regarded railway development with borrowed capital as a mitigating factor, he thought that it did not produce the same consequences in India as it did for example in the USA. It was recognized that the railways help in increasing the productivity of the country because they distribute the produce of the country from one part to another basically transferring it from the places where it is available to where it is not. But every country even if it building its railways out of borrowed capital, derives immense benefit in the long run. However, that was not the case with India. This is basically because of two reasons or rather two practices that were followed by the British in India[9]:-

    For the director’s home establishments, Government superintendents and other Government establishments, the wealth was transferred from India.[10]

    A large European staff of employees did eat up and take away a large portion of the income in the form of salaries and perks.

Dadabhai thus came to the conclusion that the only real question as regards the public works is not how to stop the British but as to how to let the people of India reap the full benefits.

It is necessary for us to examine some statistical evidence now in this respect in order to confirm the ideas that have been put forward.

During the period 1863-1913, Great Britain had invested about 4% of her national income overseas, the percentage being as high as 7% during the latter part of the period. Roughly 2/3rd went to the white men’s settlements. Investment was thus of the type of direct investment in the general economic development in these newly settled areas. The colonial pattern of foreign investment, i.e., the concentration of investment on extractive industries producing raw materials for the export to advanced countries, in general, and to the mother country, in particular, played a minor role.[11] Thus ¾th of British foreign investments were accounted for by public investments or public-utility investments, and the rest by banking, insurance, manufacturing and raw-material extraction. However, it must be noted that there is no doubt that capital development in these areas, through the construction of economic overheads, stimulated the development of primary production under favourable natural conditions and also the export trade in primary commodities. Whether this was colonial economic development is a matter of semantics or rather a question of definition. The situation can well be summarized as follows:-

“…England had found it convenient to produce what and meat in Argentina, gold and wood in Australia, minerals and food products in Africa, raw materials and food in the US and Canada…”[12]

The tropical colonies of India received only ⅓rd of the total capital outflow. This part of the British capital was employed in a much more dubious fashion.[13] Nineteenth century British investment centred on railways. The Indian railways accounted for nearly 1/10th of the total British railway securities in 1914. British railways system as protected by a system of extensive Government assistance in the form of and grants, subsidies and guaranteed returns to the investors. However, the other advantages flowing from the British investment to the Indian railways cannot be neglected, of which Dadabhai tried to give a balance sheet. Nevertheless in India, the railways did not give rise to a flood of satellite innovations and it actually destroyed more employment opportunities than it opened up.[14] It is now generally recognised that the colonial pattern of investment gave rise to a more lop-sided development than a balanced growth. Apart from this aspect of the question, the early history of plantation industries and mining in India had an unsavoury character which has passed into legend. It was once said that:-

“… England sends her capital abroad to places where poverty and hardship still exist; in other words where labour is cheap. We live in comfort on the imported profits of that capital…”[15]

This is a statement that Dadabhai would have totally agreed with. For example, he had estimated that in 1885 the exports of British planters out of India were about 10 million pounds out of the total exports of 65.3 million pounds for British India, excluding the exports of the ‘Native States’ and ‘Frontier Territory’.

Section IV

Dadabhai counters his critics

It was a paradox without doubt that the drain theory could be sustained in the context of a sizeable export surplus which India had in relation to Britain.[16] Dadabhai’s critics who had still not shed their mercantilist notions thought that an export surplus did not promise a profit to India and an influx of specie into the country was a visible realisation of this profit. However, Dadabhai countered their arguments very successfully. He said that India has not got its imports of silver as so much profit on its exports or making up so much of deficit of imports against exports. The import of bullion has been chiefly from commercial and financial necessities. During the period 1801-1863, the net imports were 234.3 million pounds. From 1864 to 1869, the imports were about 101.12 million pounds. During these years there were also great remittances for the railway loans. He explained the increasing monetisation of the rural economy mainly in consequence of the new universal system of collecting all revenue in cash created a large demand for silver coins. Dadabhai estimated that about 135 million pounds of coinage was in circulation which would just about give 13s-6d. per head of the population.

He said that to talk about the oriental wealth now and as far as British India is concerned is pretty much a dream. When we talk of all the silver that was purchased, more often than not, we forget how minutely and widely a large portion of it must be distributed to be of no use for national purposes. The Herschel committee estimates corroborated Dadabhai’s argument regarding the virtual irrelevance of the silver imports into India. The committee estimated that during the period of 1870-71 to 1892-93, the net imports of silver were about 7.184 million rupees, but nearly the whole of the newly imported silver had during this period passed through the mint.

This makes us wonder as to how much the East India Company actually plundered away before they began to re-import the bullion.[17] In this regard, it makes sense to refer to the testimonies of Sir John Shore and Lord Cornwallis mentioned earlier. Sir John Shore makes it clear that in the period between 1777 and 1787, there was large outflow of bullion from India.

Although remittances to China were normally financed by the government by means of bills, a large amount of silver had been remitted by India. Silver bullion had also been transferred by individuals in considerable amounts. Sir John had no hesitation in coming to the conclusion that current silver had greatly diminished in quantity and that further depletion was expected for three reasons. They were:-

  • That the old channels of importation by which the drains were formerly replenished were in great measure closed.
  • That Madras, Bombay and China had to be supplied with silver money.
  • The exportation of it by the Europeans to England will continue still further to exhaust the country of its silver.

Lord Cornwallis confirmed Sir John Shore’s observations regarding the depressions in agriculture and internal trade. Lord Cornwallis mentions the ‘heavy drain of wealth’, ‘the diminution of current specie’ and ‘supplying wants of other Presidencies’ as the causes for the economic debacles. Dadabhai agreed to these ideas without any hassle.

A case study on the effect of the ‘Drain of Wealth’ from India on the present day India[18]

The Draining Away of Assam’s Oil Resources:-

The history of Assam since the last century is closely linked with the discovery of oil and its subsequent and continuing exploitation by firstly, the British, and later in the post-Independence period by the colonial Govt. of India. This phase of Assam’s history began in November 1866. In that fateful year one Mr. Good Enafe of the Calcutta Machinery attempted a manual digging of an oil well in the Naharpung area in Upper Assam. After finding no oil at a depth of 120feet he gave up. In March 1867 the first oil well in the Asian continent to be dug using mechanical means was started in the Makum Namdang area also in Upper Assam. They hit oil at 118 feet and over a tone of crude oil was extracted. In 1889 the Assam Railway & Trading Company began massive oil exploration and production in Digboi. 1893 saw the formation of Assam Oil Syndicate to handle oil production in Assam and a complex sprung up in north of Digboi. This fructified in 1901 with the establishing of the Assam Oil Company that started producing 500 barrels of crude oil per day and established a refinery to refine this crude in Digboi itself. In 1911 the Burma Oil Company came to Assam with the intention of oil exploration and production and soon they discovered massive oil reserves in Surma valley.

Later the Oil India Ltd. was set up to exploit the natural crude oil and natural gas of Assam. The company set up the oil and gas based Namrup Fertilizer plant, a petrochemical plant in the same area and also a power complex using gas for production of electricity. Further in Duliajan a plant was set up to manufacture Liquid Petroleum Gas, or LPG and market the same as cooking gas all over India.

The British as a colonial power with a history of looting and exploitation of all its colonies did the same with Assam in India. The Indian colonial govt. has been perhaps the most ardent students of the British and continued this exploitation of all of Assam’s natural resources, however in a more subtle and secretive manner. Special clauses inserted in Indian constitution such as the Articles 246 to 248 ensured that Assam did not gain much from the oil production. The people of Assam have never benefited from the oil revenue. On the other hand they have been kept completely in the dark and not informed about the factual reality of the oil reserves, its production, refinement, sales, revenue accrued etc.

In 1948 Delhi and its appointed oil companies sold a metric tonne (MT) of Assam’s crude oil at Rs. 1382. Assam received Rs. 61 per MT as royalty. As taxes the central government received Rs. 532 and gave Assam Rs. 131 out of this. In subsequent years the price of oil increased substantially but the minimal royalty did not, in equal ratio.

In 1991-92 the natural gas in Assam was still not utilized fruitfully. 56% was flared off. The official figures in 1992-93 were Rs. 30 lakh per day of natural gas wasted.


Oil well/field Production in million tons Refinery:-

Naharkatia — 0.26 million tonnes

Digboi — 0.75 million tonnes

Noonmati — 1.40 million tonnes

Moran — 0.60 million tonnes

From the above table we can see that two-third of Assam’s crude oil is refined outside the state. As a result the peoples of Assam are deprived of crores of rupees in revenue and employment opportunities.

Apart from this the Indian State machinery has not given a thought to the future of the peoples of Assam but they are systematically draining off all of Assam’s oil reserves.

Assam’s oil reserves are expected to be completely drained off and depleted by the year 2019 AD. But the figures also reveal that every decade more and more oil reserves are being discovered. It is worth mentioning that the Shell Company recently discovered an oil reserve having 14000 metric tonnes of oil. The pertinent fact is that the central government has kept all findings about the oil and mineral resources, and facts and figures secret. In the name of maintaining official secrets and national security the facts of Assam’s oil reserves are classified and never disclosed to the peoples of Assam, as the reality of the sustained economic exploitation of the natural wealth of Assam would make the people revolt against the ruthless Indian State machinery. What is Assam’s contribution to the total Indian production of oil and what does it gain from this? This is the difference between the farce of “Independence” and democracy, which India so proudly claims while continuing the colonial exploitation of a marginalized people.

The situation now

Before Colonial rule and the infusion of Western systems, people in the Third World lived in relatively self-sufficient communities, planted rice and other staple crops, fished and hunted for other food, and satisfied housing, clothing, and other needs through home production or small-scale industries that made use of local resources and indigenous skills. The modes of production and style of life were largely in harmony with the natural environment.[19]

Colonial rule accompanied by the imposition of new economic systems, new crops, the industrial exploitation of minerals, and participation in the global market (with Third World resources being exported and Western industrial products imported) – changed the social and economic structures of Third World societies. The new structures, consumption style, and technological systems became so ingrained in Third World economies that even after the attainment of political independence, the importation of Western values, products, technologies, and capital continued and expanded. Third World countries grew more and more dependent upon global trading and financial and investment systems, with transnational corporations setting up trading and production bases in the Third World and setting products there. With the aid of infrastructure programs funded by Industrial governments, multilateral institutions such as the World Bank, and transnational banks, Third World governments were loaned billions of dollars to finance expensive infrastructure projects and to import highly capital-intensive technologies. They were also supported by foundations, research institutions, and scientists in the industrialized countries that carried out research on new agricultural technologies that would “modernize” the Third World – that is, that would create conditions whereby the Third World would become dependent on the transnational companies for technology and inputs.

To finance the import of modern technology and inputs, Third World countries were forced to export even more goods, mainly natural resources such as timber, oil, and other minerals, and export crops that consumed a larger and larger portion of the total agricultural land area: Economically, financially, and technologically, Third World countries were sucked deeper and deeper into the whirlpool of the world economic system and consequently lost or are losing their indigenous skills, their capacity for self-reliance, their confidence, and, in many cases, the very resource base on which their survival depends. But the Western world’s economic and technological systems are themselves facing a crisis The Third World is now hitched onto these systems, over which they have very little control. The survival and viability of most Third World societies will thus be put to the test in the next few decades. Even now, there are numerous examples of how the Western system has caused the degradation of the environment and the deterioration of human health In the Third World.

Import of Hazardous Technologies and Products:-

Hazardous products are also being pushed on the Third Word in increasing volume. There are many examples of these: pharmaceutical drugs, contraceptives and pesticides banned years ago in Europe, America, or Japan but sold by companies of these same countries to the Third World; cigarettes with a far higher tar and nicotine contents than in the rich countries, and most recently, milk products contaminated with high radioactivity resulting from the Chernobyl nuclear disaster. The health effects on Third World peoples are horrendous. For example, it is estimated that forty thousand people in The World die from pesticide poisoning each year.

Moreover, millions of babies have died of malnutrition or illness from diluted or contaminated baby formula pushed by transnational companies that persuaded mothers to give up breast feeding on the argument that infant formula is a superior form of nourishment.

The hazardous technologies and products imported from the industrialized countries often displace indigenous technologies and products that may be more appropriate to meet the production and consumption needs of the Third World. Labour intensive technologies that provide employment for the community and are in harmony with the environment (traditional fishing methods, for instance) are replaced with capital intensive modern technologies that in many instances are ecologically destructive. Appropriate products or processes (such as breast feeding) are replaced by modern products that are thrust upon the people through high powered advertising, sales promotions and pricing policy. The Third World is thus losing many of its indigenous skills, technologies, and products, which are unable to survive the onslaught of the modem world.

The Green Revolution:-

The modern industrial system has changed the face of Third World agriculture. In many Third World societies, under the new plantation system, much of the lands formerly planted with traditional food crops have been converted into cash-crop production for export. If export prices are high, the incomes obtained could be higher for export-crop farmers; but when prices fall, as they have in recent years, the farmers are not able to buy enough food with their incomes, and also many agricultural workers lose their jobs.

The so-called Green Revolution is a package program that makes it possible to grow more than one crop per year through the introduction of high-yielding seed varieties (especially of rice), high doses of chemical fertilizers and pesticides, agricultural machinery and irrigation.

In many areas where this “revolution” was implemented there was an initial rise in production because more than a single crop could be produced in a year. But the corresponding rise in farmer’s incomes was soon offset by the increasing costs of imported chemical inputs and machinery. High-input agriculture favoured richer farmers who could afford to pay for the chemicals and drive out poorer farmers who could not. The pesticides exacted a heavy toll in thousands of poisoning cases. In addition, the high-yielding crop varieties are very susceptible to pest attacks as insects become resistant to the pesticides. Yields in some areas have dropped.

Meanwhile, thousands of indigenous rice varieties that had withstood generation of pest attacks have been abandoned and are now only preserved in research laboratories, most of which are controlled by international agencies and corporations in rich countries. Third World farmers and governments will increasingly be at the mercy of the transnational food companies and research in situations that have collected and patented the seeds and germ plasm originating in the Third World itself.

Biotechnology The Latest Weapon:-

Although it is still relatively new, the application of biotechnology to agriculture has already had severely detrimental impacts on Third World economics. A few examples will illustrate this point.

Seventy thousand farmers in Madagascar growing vanilla were ruined when a Texas firm produced vanilla in biotech labs. In 1986, the Sudan lost its export market for gum Arabic when a New York company discovered a process for producing gum. It is now estimated that biotechnology can find substitutes for $14 billion worth of Third World commodities now exported to the rich countries. This will dramatically reduce the Third World’s income.

Modern Industrial Plants and Energy Mega projects:-

The introduction of Western consumer goods, industrial plants, and energy mega projects has also greatly contributed to the loss of well-being in the Third World.

The indigenous, small-scale industries of the Third World produced simple goods that satisfied the basic needs of the majority of people. The technology employed to manufacture these goods was also simple and labour-intensive. Many of these indigenous industries have been displaced by the entry of modern products that, when heavily promoted through advertising, become glamorized, rendering the local products low in status by comparison. With modern products capturing high market shares, modern capital-intensive industries (usually foreign-owned) set up their bases in Third World countries and displace the traditional, locally owned industries.

But many Third World countries were not content simply with modern consumer-goods industries. They also copied the cities of the industrial nations and set up large infrastructure and industrial projects: steel mills, cement plants, vast highways, big bridges, and super-tall buildings. The political leaders and elites of the Third Word feel their countries need to have all this in order to appear “developed”, just like the industrial countries.

Huge amounts of energy are required by modern industrial plants and infrastructure, hence the need for the mega projects in the energy sector particularly large hydroelectric dams and nuclear power stations. Each such project has its problems: The huge dams require the flooding of large tracts of forest and agricultural land, causing the displacement of many thousands of people living there. In any case, the dams do not last for long due to siltation, so they are usually not viable financially. Their costs far outweigh their benefits. There are also health effects, as ecological changes associated with dams and irrigation canals spread schistosomiasis (carried by snails), malaria, and other waterborne diseases. Finally, there is the possibility of a major tragedy should the dam burst, as has occurred in India and elsewhere.

In the case of nuclear power plants, those sold to the Third World do not have the same quality and safety standards as those installed in industrialized countries, where there is stricter quality control and greater technical expertise. If a power plant installed in a Third World country is found unsafe, the government has a dilemma: stop its operation and incur a huge loss or continue using it but run the risk of a tragic accident. In the Philippines, Westinghouse Corporation built a nuclear power plant for $2 billion, but there were so many doubts about its safety that the Aquino government decided to “mothball” it. Even when a nuclear power plant is declared safe enough to start operating, there is the difficulty of disposing of its radioactive waste.

These huge industrial, infrastructural, and energy projects often cost hundreds of millions or billions of U.S. dollars. The projects are invariably marketed by transnational corporations that stand to gain huge sums in sales and profits per approved project. Financing is arranged by the World Bank, by transnational commercial banks, or by First World governments, usually under aid programs

Absorbing so much investment funding, they deprive communities of much-needed finance for genuine development projects while leading the borrowing Third World nations into the external debt trap. Finally, they cause widespread disruption and displacement of poor communities, especially indigenous peoples, who by the hundreds of thousands have to be “resettled” as their forests and lands are flooded out by dams.

The Drain of Resources from South to North:-

In this way, via their powerful technological capacity and their domination of the new global systems of trade and finance, the industrial countries have rapidly sucked out forest, mineral and metal resources from the Third World and used its land and labour resources to produce the raw materials that feed the machinery of industrialism. It is worth reminding readers that the industrial nations – approximately one-fifth of the world’s population – use up four-fifths of the world’s resources, mostly for making luxury products.

The Third World, by contrast, with three quarters of the world’s population, uses only 20 percent of the world’s resources. Since incomes are also unequally distributed within Third World nations, a large part of these resources are used to make or import the same luxury products as are enjoyed in the industrial nations and to import capital-intensive technologies required to produce such elite consumer goods. Thus, only a small portion of the world’s resources serves the basic needs of the poor majority in the Third World, who sink deeper into the trough of poverty and destitution. This is the ultimate environmental and social tragedy of our age.

The resource based on which communities have traditionally relied for both production and home-needs has been rapidly eroded. Soils required for food production become infertile; forests that are home to indigenous people are logged; water from the rivers and wells are clogged up with silt and toxic industrial effluents.

The transfer of resources from South to North takes place through many channels. First, there is the transfer of physical resources. For example, only 20 percent of the world’s industrial wood comes from tropical forests, but more than half of that is exported to the richest nations. The developed countries produce and keep 80 percent of the world’s industrial wood but also import much of the rest of the world’s timber harvest as well. Most of it is used for furniture, high-class joinery, housing, packing material, even matchsticks.

Second, there is a transfer of financial resources in that the prices of Third World commodities (often obtained at a terrible environmental cost) are low and declining even more. Between $60 and $100 billion per year were lost to Third World countries in 1985 and 1986 alone due to the fall in commodity prices. In human terms, this means drastic cuts in living standards, massive retrenchments of workers, and big reductions in government budgets in many Third World countries.

Third, many of the “development projects” that lead to the loss of resources are financed by foreign loans. It is rare for these projects to generate sufficient returns to enable repayment of debt, so debt repayments are ultimately met by the already impoverished Third World citizens.

The New GATT:-

This deteriorating situation has been exacerbated by the passage of the Uruguay Round of GATT. The United State and other developed countries have expanded the powers of GATT (which formerly dealt only with the regulation of trade in goods) to include service Industries. The major areas included are banking, insurance, information and communications, the media, and professional services such as law, medicine, tourism, accounting, and advertising.

It is now possible to predict that because of the new rules of GATT, many of the service industries in the Third World will come under the direct control of the transnational service corporations within a few years. This means that the last sectors in the Third World that are still controlled by national corporations will be taken over by northern transnationals. In terms of manufacturing and agriculture, many Third World countries are already controlled by transnational corporations, either through investments or through dependence upon products from the global market.

Now the multinational service corporations are able to set up in the Third World and are not only given the freedom to trade and invest there but also to benefit from what is referred to as national treatment, which means that a transnational company must be given the same terms as those accorded to a national or local company. Some Third World countries formerly restricted the participation of foreign banks in the economy by, for instance giving a limited number of licenses to foreign banks or by allowing foreign banks to participate only in certain kinds of banking. Foreign banks may be prohibited from setting up branches in small towns so that local banks will have more of the deposit business. Now, under GATT, foreign banks are given total freedom and will be treated just like local companies. We are thus going to see the marginalisation of local banks, local financial services, and professional services. It may even mean that media companies in the United States or Australia may be given the freedom to set up television and print media companies in the Third World and thereby actually control the cultures of Third World countries.

Third World countries may believe that if they give way to the developed countries in areas such as services, investments, and intellectual property rights, they may benefit in other areas. For instance, they may be given better access to the markets of the industrialized countries through lower tariffs. But this may be an illusion. The industrialized countries have violated similar bargains with Third World countries in the past, and Third World complaints may be given especially short shift by the World Trade Organization.

Under the new conditions for trade and investments, neither the Third World nor the United States will have the authority to establish environmental, occupational health, or other safety regulations, some of which will be considered to be against the principles of free trade and free investment. For instance, Indonesia recently proposed to ban the export of rattan, which is a very important forest product. Rattan is getting ever scarcer, and the government wanted to retain rattan in Indonesia for domestic use. This of course was welcomed by environmentalists, who do not want to see the depletion of forest resources. Immediately, however, the United States and the European Community criticized the Indonesian government on the grounds that the export ban was against the principle of fair trade. They accused the Indonesian government of taking protectionist steps and threatened retaliation against its exports.

Under GATT rules, a government can theoretically propose to ban international trade in toxic wastes or in products that are banned in countries where they are produced because they are considered dangerous, such as pesticides, drugs and so on. But when some Third World governments actually tried to put trade in toxic wastes onto the agenda of GATT, it was resisted by the developed countries.

An Alternative Vision:-

The analysis just given clearly show that a radical reshaping of the international economic and financial order must occur so that economic power, wealth, and income are more equitably distributed and so that the developed world will be forced to lower its irrationally high consumption levels. If this is done, the level of industrial technology will be scaled down, and there will be less need for the tremendous waste of energy, raw materials and resources that now go toward the production of superfluous goods simply to maintain “effective demand” and to keep the monstrous economic machine going. If appropriate technology is appropriate for the Third World, it is even more essential as a substitute for the environmentally and socially obsolete high technology in the developed world.

But it is almost impossible to hope that the developed world will do this voluntarily. It will have to be forced to do so, either by a new unity of the Third World in the spirit of OPEC in the 1970s and early 1980s or by the economic or physical collapse of the world economic system. This will enable a redistribution of priorities away from luxury-oriented industries and projects and toward the production of basic goods and services. If the poor are allocated more resources, the demand for the production of such basic goods and services would increase. With people given the basic facilities to fend for themselves, at least in terms of food crop production, housing, and health facilities, Third World governments can reduce their countries dependence on the world market.

In development planning, the principles of such ecologically sustainable development should be adopted: minimizing the use of non-renewable resources; developing alternative renewable resources; and creating technologies, practices and products that are durable and safe, and satisfy real needs.

In searching for the new environmental and social order we should realize that it is in the Third World that the new ecologically sound societies will be born. We need to recognize and rediscover the technological and cultural wisdom of our indigenous systems of agriculture, industry, shelter, water and sanitation and medicine.

Third World governments and peoples in the developed world have first to reject their obsession with modern technologies, which absorb a larger and bigger share of investment funds for projects such as giant hydro dams, nuclear plants and heavy industries that serve luxury needs.

We need to device and fight for the adoption of appropriate, ecologically sound, and socially equitable policies to satisfy our needs for such necessities as water, health, food, education and information. We need appropriate technologies and even more so the correct prioritizing of what types of consumer products to produce; we can’t accept appropriate technology producing inappropriate products. Products and technologies need to be safe to handle and use; they need to fulfil basic human needs and should not degrade of deplete the natural environment. Perhaps the most difficult aspect of this fight is the need to deprogram Third World peoples away from the modern culture that has penetrated our societies, so that life-styles, personal motivations, and status structures can be delinked from the system of industrialism and its corresponding creation of culture.

Thus we can see that the situation has hardly changed. The equations are still the same between the underdeveloped countries and the developed countries. There is still the same exploitation that existed at one point of time. The drain of wealth from the weak and the poor still continues just as it did during the British rule from India as Dadabhai so rightly pointed out for the world to see.



The researcher hopes that this project has achieved its objective of trying to educate the reader about the ‘Drain of Wealth’ from India during the British rule.

Certain points to be noted with regard to the topic in question are as follows:-

  • The British plundered India over a period of about 200 years without anybody to stop them.
  • Many a time, the economic aspect of the British rule seemed to be forgotten because of the political struggle for power.
  • The situation may have changed in political aspects and the colonies may have achieved independence but the economic exploitation still goes on in one form or the other by the developed countries of the developing and the underdeveloped countries.

The drain of wealth from India seemed to have its own harmful effects on the Indian economy after independence and in the policies of the Government of India too.

[1] During the period of Governor-Generalship of Lord Wellesley, who followed a militant external policy, Indian debt increased by 20 million pounds, although he received at least 1 million pounds annually from the Directors of the East India Company for the ostensible purpose of reducing the Indian debt, between 1822 and 1828, the Company’s Indian debt had increased from 29,388,000 pounds to nearly 40,000,000 as the result of the Burmese war.

[2]A New Discourse of Trade’, Sir Josiah Child, p. 153., cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 9.

[3] Ibid., p. 7.

[4] Import and Export Report, 1790, cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 9.

[5] C.H.Philips, The East India Company, 1754-1834, p. 71, cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 9.

[6] H.B. Morse, ‘The East India Company Trading to China’, Vol. II, p. 76.

[7] Ibid.

[8] Cannan, ‘Wealth’, p. 242., cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 18.

[9] B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 24.

[10] Romesh Dutt, ‘The Economic History of India’, Low-Price Publications, Delhi, 1990, p. 292.

[11] Ragnar Nurske, ‘International Investment today in the light of Nineteenth – Century Experience’, Economic Journal, December, 1954., cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 25.

[12] John. H. Williams, ‘The Theory of International Trade: Reconsidered’, Economic Journal, June, 1929, p. 208.

[13] Supra note 10.

[14] L. H. Jenks, ‘British Experience With Foreign Investments’, Journal of Economic History, 1944, Suppl.

[15] Said by a character in George Bernard Shaw’s play, ‘Apple Cart’., cited from, B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 27.

[16] B. N. Ganguli, ‘Dadabhai Naoroji and The Drain Theory’, Asia Publishing House, Bombay, 1965, p. 28.

[17] Ibid. at p. 30.

[18] Anonymous, “The Draining Away of Assam’s Oil Resources”, last visited on 23/02/2014 <>.

[19] Martin Khor, ‘Global Economy and The Third World’, last visited on 22/02/2014 <>.


5 thoughts on “Drain of Wealth from India during the British Rule”

  1. They took much more than what they could have returned. The british amassed wealth almost spuriously, blatantly and unashamedly from India and this, partly contributes to our country’s present hideous state.

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