History Optional Paper-2 Solution – 2008: Q.3

History Optional Paper-2 Solution – 2008: Q.3

Q.3 Write a critique on the impact of the Drain Theory of Dadabhai Nauroji in the growth of economic nationalism. [60 Marks]


The Indian national movement was firmly rooted in an understanding of the nature and character of colonial economic domination and exploitation. The focal point of the nationalist critique of colonialism was the drain theory. The nationalist leaders pointed out that a large part of India’s capital and wealth was being transferred or drained to Britain. The drain theory incorporated the nationalist critique of colonialism, for the drain denuded India of the productive capital its agriculture and industries so desperately needed.

The Drain Theory of Dadabhai Nauroji

Dadabhai Naoroji was the first man to say that poverty was caused by the colonial rule that was draining the wealth of India. In 1867, Dadabhai Naoroji put forward the ‘drain of wealth’ theory in his book Poverty and Un-British Rule in India. He put forward the idea that Britain was draining and bleeding India and that, too, for nothing. He stated the loss of 200-300 million pounds of revenue to Britain.

Dadabhai Naoroji gave several factors that caused external drain. According to him, the British Empire in the form of Home Charges drained the wealth from India. Home Charges were the charges paid from Indian budget to the people at London. This expenditure incurred in England mostly by the Secretary of State on behalf of India.  Home Charges include:

(a) Interest on the public debt,
(b) Pensions paid to the British officers worked in India,
(c) Dividends of East Indian company (allotted from 1833),
(d) Expenditure to maintain the office of Secretary of State in London (met from Indian Budget till 1919),
(d) Charges for civil administration, army, stores, guaranteed railways, etc.
(d) Annuities on account of railway and irrigation works.

Other sources of drain were:

(a) Remittances to England by Europeans to their families
Remittances for purchase of British Goods for consumption of British employees in India.
(b) Unfavorable trade to India and use of cheap Indian labour indirectly drained wralth of India.
(c) Interest and profits on private foreign capital were another source of drain.

Impact of the Drain Theory in the Growth of Economic Nationalism

From 1867 onward, for nearly half a century Nauroji launched a campaign against the drain, hammering at the theme through every possible form of public communication. R.C. Dutt made the drain the major theme of his Economic History of India.

The drain theory had far reaching impact on the growth of the economic nationalism in India. Banking on this theory the early nationalists attributed the all encompassing poverty not as a visitation from God or nature. It was seen as man-made, and therefore capable of being explained and removed.

Based on the drain theory of Dadabhai Naroji, the nationalists came to see the foreign capital in perilous terms. They came to regard foreign capital as an evil, which did not develop a country but exploited and impoverished it.

It was further argued that instead of encouraging and augmenting Indian capital, foreign capital replaced and suppressed it, led to the drain of capital from India and further strengthened the British hold over Indian economy.

According to them, the political consequences of foreign capital investment were no less harmful for the penetration of foreign capital led to its political subjugation. Foreign capital investment created vested interests which demanded security for investors and therefore perpetuated foreign rule.

The drain by taking form of excess of exports over imports, led to progressive decline and ruin of India’s traditional handicrafts.

The British administrators pointed with pride to the rapid growth of India’s foreign trade and rapid construction of railways as instruments of India’s development as well as proof of its growing prosperity. However, because of their negative impact on indigenous industries, foreign trade and railways represented not economic development but colonization and under development of economy.

According to early nationalists, drain constituted a major obstacle to rapid industrialization especially when it was in terms of policy of free trade. The policy of free trade was on the one hand ruining India’s handicraft industries and on the other forcing the infant and underdeveloped modern industries into a pre­mature and unequal and hence unfair and disastrous competitive with the highly organized and developed industries of the west.

The tariff policies of the Government convinced the nationalists that the British economic policies in India were guided by the interest of British capitalist class.

For the early nationalists the drain also took the form of colonial pattern of finance. Taxes were so raised as they averred, so as to overburden the poor while letting the rich especially the foreign capitalists to go scot-free. Even on expenditure side, the emphasis was on serving Britain’s imperial needs while the developmental and welfare departments were starred.

By attacking the drain the nationalists were able to call into question, in an uncompromising manner the economic essence of imperialism, the drain theory and the agitation by nationalists on economical hegemony of alien rulers over India. The secret of the British power in India lay not only in physical force but also in moral force that is in the belief that the British were the patrons of the common people of India. The nationalist drain theory gradually undermined these moral foundations.

The economic welfare of India was offered as the chief justification for the British rule by the imperialist rulers and spokesmen. The Indian nationalists by their forceful argument asserted that India was economically backward precisely because the British were ruling it in the interest of British trade; industry and finance were the inevitable consequences of the British rule.

The corrosion of faith in the British rule inevitably spread to the political field. In course of time, the nationalist leaders linked nearly every important question with the politically subordinated status of the country. Step by step, they began to draw the conclusion that since the British administration was only the handmade to the task of exploitation, pro-Indian and developmental policies would be followed only by a regime in which Indians had control over political power.

The result was that even though the early nationalists remained moderates and professed loyalty to British rule, they cut at the political roots of the empire and sowed in the land, the seeds of disaffection and disloyalty and even sedition. Gradually, the nationalists veered from demanding reforms to begin demanding self government or swaraj.

The impact of drain theory on economic nationalism faced some obstacle due to initial non-partition of masses in national movement and unawareness of masses and difficulties in understanding drain theory. Inspite of few limitations, the nationalists of the twentieth century were relying heavily on the main themes of their economic critique of colonialism. These themes were then to reverberate in Indian villages, towns and cities. Based on this firm foundation, the later nationalists went on to stage powerful mass agitations and mass movements. The drain theory thus laid the seeds for subsequent nationalism to flower and mature.

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