The Drain Theory

One of history’s biggest questions is the underlying question of why India’s economy grew so slowly over the last two hundred years in the first place.

The economy of India–or the collection of states that make up today’s India–was the second largest in the world from 1800 to 1870. India accounted for 22.6 percent of the world’s GDP in the 18th century. There have been times in history where India had the world’s largest economy, greater than that of China or the combined economies of Europe. India’s large economy was driven primarily by its huge population working in agriculture and manufacturing. The country additionally exported many products including cotton textiles, spices, and diamonds. However, India’s share of the global economy fell sharply during the 19th and 20th centuries, knocking it out of the top ten for a while (in raw GDP terms, the economy did grow but very slowly relative to industrialized countries). Why did this happen, and to what extent was British colonization a factor in this?

This question has inspired a lot of debate and there are multiple explanations. One of the most prominent and widely accepted in India is the Drain Theory. The Drain Theory was put forward by Dadabhai Naroji (1825-1917), the first Indian to sit in the British Parliament and a founding member of the Indian National Congress. It highly influenced Indian nationalism and the thought of Mahatma Gandhi and Jawaharlal Nehru.

According to Naroji, colonialism was unlike previous forms of imperialism because, for the most part, it did not result in the outright plunder and carting away of goods, Roman-style. He argued that instead, the British were draining the wealth away from India in the form of taxation: a large proportion of the yearly revenue raised in India was carried away to Britain, which resulted in diminishing wealth (capital) in India. Naroji compared this to the situation in medieval Europe where due to Church control of extensive lands and industries, wealth was being drained away from medieval European states to the Pope. Furthermore, while some Indian revenue was used to fund services in India, like the British Indian Army and railroads, these were often used to perpetuate the system of British drain. Finally, most bureaucrats and officers of the civil services and army were from Britain but paid from Indian taxes; when they retired, they would spend their incomes in Britain and not in India.

Naroji argued that the amount of revenue extracted by the British increased dramatically after the failed Indian Mutiny of 1857. Before the Mutiny, the British extracted two to three million rupees a year, but afterward, 20 to 30 million rupees a year, which is in the hundreds of millions of rupees in today’s terms. Naroji also argued that the Drain Theory led to a sort of “internal drain” that ruined the balance of wealth in India. This was because of regressive taxation that disproportionately impacted the peasants and poor. On the other hand, India’s princes were able to afford British taxation.