Drain theory

• Dadabhai Naoroji made several contributions in the Indian Economic Thought
• He laid down the foundation of studying the problems faced by India during British rule from a practical angle and devised the necessary statistical tool for it
• He was motivated by a deep sense of patriotism
• Dadabhai Naoroji emphasized


  The basic duty which the British government had towards its subjects in India
• Dadabhai Naoroji advocated


  That Britain was morally not authorised to benefit at the cost of Indian interests
• Dadabhai Naoroji contributed a number of writings on the subject of Indian poverty and the consequences of British rule
• One of his greatest contributions is 'The Drain Theory'
• The Drain Theory comprehends the essence of what Dadabhai Naoroji wanted to say as a patriotic citizen who had studied the causes of poverty in a colonial economy
• The economic drain was a manifestation of the unjust and forceful obstruction in the way of Indian economic growth and led the country to a heavy foreign indebtedness
• The whole gamut of financial, civil, and military set-up was geared towards setting up a mechanism which extorted resources from the Indian economy
• The economic drain may be defined as a complex system through which the economy's surplus was extracted out by a process of internal drain
• The internal economic drain is the transfer of income from small producers in agriculture and crafts to organized urban sectors, landlords, merchants, etc., through the medium of taxation, interest payment, profit, and other forms of surplus
• The external drain was represented by the unilateral transfer of purchasing power from India to England through the movement of precious metals
• Initially, the external drain was represented by the unilateral transfer of purchasing power from India to England through the movement of precious metals
• Increase of India the export surplus in its trade with England was not often matched by any corresponding payment from England to India since they were accounted for charges against India as home charges, war expenses of England etc.
• Initially the external drain was represented by the unilateral transfer of purchasing power from India to England through the movement of precious metals
• Later on this transfer of purchasing power took the form of export of commodities from India to England
• For these exports, there was no equivalent flow of payments from England to India
• Since the export of commodities was not matched by any counterflow of payment, it is called as unrepeated export surplus
• It was argued that a large portion of India's national wealth was transferred to England without any quid-pro-quo, i.e., without any returns
• Since the resources were transferred from India to England without much significant returns from England, such transfer of resources was described as drain of India's resources
• This phenomena of transfer of resources and wealth from India to England was called as Economic Drain by Dadabhai Noroji
• Mechanism of Economic Drain

  1. Merchants and officials of East India Company and other officials demanded gifts from Indian people

  2. Remittances to England by European employees for the support of families and education to their children

  3. European employees preferred to invest in their own countries rather than in India

  4. Government of India had to make payments for the purchase of things manufactured in England

  5. The Government of India had to make large payments to people in England on account of the political and commercial connections between India and England

  6. Home charges were imposed in the form of payment to railways, irrigation works, interest on the debt raised by England, pensions of retired British officials etc.

  7. There was a neglect of traditional public works

  8. Heavy duties were imposed on Indian goods going to England

  9. Free imports of British manufactured goods

  10. The Government purchased most of its stores from the British manufacturers and the foreigners in India also purchased mostly foreign goods
• The combined effect of all these factors was that the resources drained from the Indian economy did not flow back into it
• External Economic Drain


  Affected through the mechanism of export surplus