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Unit 2
Economic Critique of Colonialism – Drain Theory

Learning Outcomes

Upon completion of the unit, the learner will be able to:

  • critically analyse the economic reasons behind the British colonisation of India.
  • trace the ways in which the economic exploitation of India contributed to the financial prosperity of the British.
  • get an insight into the economic drain that happened during British colo-nialism with ample dates and figures.
  • Figure out the impact of economic drain on the then Indian society.


One of the major reasons behind any colonisation is drain of wealth.We should understand that the time period in which this colonisation emerged was an era highly impacted by imperialistic policies of European countries as well as a time period influenced by the emergence of Industrial Revolution. All the colonisers including the British used their corresponding colonies to procure raw materials to be exported to their home country so that they could use the same to make manufactured goods to sell them in these colonies and other countries at a comparatively fair price. These colonists bought raw materials at a low price and sold their well-furnished products in the colonies at a high price.This process adversely affected indigenous and small scale industries of the natives and economy of the host colony began to deplete in an unimaginable manner.The same thing happened in colonial India at the hands of Britishers, who besides the above- mentioned facts looted and corrupted Indian wealth whenever the opportunity presented itself before them.

The treaties and agreements which they made with the native kings playing one against the other also made them ‘rich’ as wealth accumulated in them either as properties, land or money. Furthermore, the trade monopoly which they procured in the initial stages helped them further to have a lion’s share of the Indian wealth from the native people either directly or indirectly.The economic exploitation of the Indians at the hands of the British spanned for more than two centuries even before their real rule began here from 1858 onwards.The details of the above-mentioned and more points will be revealed with precise data in this unit.

Key Words

British Colonialism, Indian Economy, Exploitation, Drain of Wealth

5.2.1 The Drain of Wealth Policy

The British exported to Britain part of India’s raw materials for which India got no adequate economic or material return. This ‘economic drain’ was peculiar to the British rule. This is well-documented in the works of Dadabhai Naoroji and R.C. Dutt through their magnum opus. Dadabhai Naoroji was the one who authentically stated about the ‘Drain Theory’ pertaining to economic exploitation of the Indian economy by the British.

Whether they spent it on irrigation canals and trunk roads, or on palaces, temples and mosques, or on wars and conquests, or even on personal luxury, it ultimately encouraged Indian trade and industry or gave employment to Indians. This was so because even foreign conquerors, like the Mughals, soon settled in India and made it their home. But the British remained perpetual foreigners.

The Englishmen, working and trading in India, nearly always planned to go back to Britain, and the Indian government was controlled by a foreign company of merchants and the government of Britain. The British, consequently spent a large part of the taxes and income they derived from the Indian people not in India but in Britain, their home country.

The drain of wealth from Bengal began in 1757 when the Company’s servants began to carry home immense fortunes extorted from Indian rulers, zamindars, merchants and the common people. They sent home nearly £6 million between 1758 and 1765. This amount was more than four times the total land revenue collection of the Nawab of Bengal in 1765.

This amount of drain did not include the trading profits of the Company which were often no less illegally derived. In 1765 the Company acquired the Diwani of Bengal and thus gained control over its revenues. The Company, even more than its servants, soon directly organised the drain. It began to purchase Indian goods out of the revenue of Bengal and began to export them. These purchases were known as ‘Investments’.

Thus, through ‘Investments’, Bengal’s revenue was sent to England. For example, from 1765 to 1770, the Company sent out nearly £4 million worth of goods or about 33 percent of the net revenue of Bengal.

By the end of the eighteenth century, the drain constituted nearly 9 per cent of India’s national income. The actual drain was even more, as a large part of the salaries and other incomes of English officials and the trading fortunes of English merchants also found their way to England.

The drain took the form of an excess of India’s exports over its imports, for which India got no return. While the exact amount of the annual drain has not been calculated so far and historians differ on its quantum, the fact of the drain, at least from 1757 to 1857, was widely accepted by British officials.

Thus, for example, Lord Ellenborough, Chairman of the Select Committee of the House of Lords, and later the Governor-General of India, admitted in 1840 that India was “required to transmit annually to this country (Britain), without any return except in the small value of military stores, a sum amounting to between two and three million sterling”.

And John Sullivan, President of the Board of Revenue, Madras, remarked: “Our system acts very much like a sponge, drawing up all the good things from the banks of the Ganges, and squeezing them down on the banks of the Thames.”

The drain went on increasing after 1858, though the British administrators and imperialist writers now began to deny its existence. By the end of the nineteenth century it constituted nearly 6 percent of India’s national income and one-third of its national savings.

The wealth which drained out of India, played an important part in financing Britain’s capitalist development, especially during the eighteenth century and the beginning of the nineteenth century, that is, during the period of Britain’s early industrialization.

It has been estimated that it constituted nearly two per cent of Britain’s national income during that period. The figure assumes importance if it is kept in view that Britain was at that time investing in industry and agriculture, about 7 percent of its national income.


  • Economic exploitation is the prime motive of any colonising country.
  • British economic exploitation started prior to their official rule of India.
  • They drained the wealth of India by capturing the trade monopoly.
  • The British exported raw materials at low cost and imported manufactured goods in the colonies at a high price.
  • Exports exceed imports.
  • Drain of wealth highly impacted natives, small scale and indigenous industries
  • Other forms of economic exploitation came in the form of corruption transgression in all fields of life and financial misappropriations
  • British colonisation and subsequent ‘Drain of wealth’ did have far reaching effects upon the Indian Economy as well as its society.

Objective type questions

  1. Who propounded the ‘Drain Theory’?
  2. Name the two eminent leaders who made intensive study on economic exploitation of Indian wealth ?
  3. State the year in which the British acquired the Diwani of Bengal?
  4. Drain of wealth from Bengal started from which year onwards?
  5. What is the percentage of drain of wealth calculated by economic historians that happened during the colonial period?
  6. Name the book written by Dadabhai Naoroji explaining the theory of ‘Drain of Wealth’?
  7. What did the British export from India to facilitate Industrial Revolution-related activities in European countries?
  8. Which industries were mostly affected by the economic exploitation of the British in India?
  9. What was the main factor that triggered colonialism in Asian and African nations by the Europeans?
  10. Name the transition phase in manufacturing of goods that occurred in Britain during colonial period?

Answer to Objective type questions

  1. Dadabhai Naoroji
  2. RC.Dutt & Dadabhai Naoroji
  3. 1765
  4. 1757
  5. 9 percentage
  6. Poverty and Unbritish Rule in India
  7. Raw material
  8. Indigenous and Small-Scale Cottage Industries
  9. Imperialistic Policies of European Nations
  10. Industrial Revolution.


  1. Discuss the strategies adopted by the British to drain the wealth of India.
  2. Trace the evolutionary transit of economic exploitation that happened during the colonial period.
  3. Critically evaluate the role played by the Industrial Revolution in priming the economic exploitation in colonies from Asia and Africa.
  4. Provide a critical analysis of the major works on the economic history of India from 1857 – 1947.

Suggested Reading

  1. Sumit Sarkar, Modern India: 1885 – 1947, Pears Education Publishers, 2014.
  2. Bipan Chandra, India’s Struggle For Independence, Penguin Books Random Publishing House, 2016.
  3. Dadabhai Naoroji, Poverty and Un-British Rule in India, Heritage Publishers, 2020.
  4. R.C.Dutt, Economic History of India, Low Price Publishers, 1994.
  5. Thirthankar Roy, Economic History of India 1857 – 1947, Oxford Publishers, 2011.