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  Drain of Wealth during British Raj  


By: B Shantanu
February 06, 2006
iews expressed here are author’s own and not of this website. Full disclaimer is at the bottom.


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Whenever the issue of economic exploitation and the “drain of wealth” during the 200 years of British colonial rule comes up, the one rebuttal from western historians is that there is scant evidence to prove it. To bolster the argument, the point is then made that Indian historians are nationalist, biased (sometimes as a consequence) and do not pay attention to figures and statistical evidence. 

In my analysis of this topic, I have therefore, relied heavily on recent research by Western historians and tried to draw conclusions based on that.  

Even by the accounts of western historians, the positive impact of British rule, which PM Sh. Man Mohan Singh had so pointedly mentioned during his speech at Oxford in Jul ’05, is questionable.   

The “drain of wealth” from India to Britain during the two centuries of colonial rule was very real, very substantial and there are strong reasons to believe that India may have looked significantly different (and far better) economically and socially had it not been for the two centuries of British rule. 

The beginning of this period can probably be traced back to the Battle of Plasssey. As Prof. Richards writes in the introduction to his paper “Imperial Finance Under the East India Company 1762-1859”[i],  “On June 23,1757, Robert Clive, commanding a small force of East India Company professional troops, defeated and killed Siraju-ud-daula, the ruling Nawab of Bengal, on the battlefield of Plassey. The battle marked a significant turning point in world history, for it permitted the English East India Company to gain control over the rich resources of the Mughal successor state in northeastern Bengal and Bihar.  

…This was the starting point for a century-long process of British conquest and dominion over the entire Indian subcontinent and beyond.”   

To help grasp the full extent of this exploitation, I have split my analysis into five parts. In Part 1, I look at the tax regime and the burden of administrative machinery. In Part 2, I try to get behind the assertion that the British contributed much to the improvement of education and public works in India. In Parts 3 and 4, I look at unfair trade practices and the drain of wealth. In the final part, I have tried to summarize the impact of these 200 years of servitude.  


In their recent research on deindustrialization in India[ii], Profs Williamson and Clingingsmith mention that while the maximum revenue extracted by the Mughals as high as 40%, this paled in comparison to the effective tax rate in the early years of colonial rule: “as central Mughal authority waned, the state resorted increasingly to revenue farming…(raising) the effective rent share to 50% or more…” 

Further, “There is no reason to believe that when the British became rulers of the successor states the revenue burden declined (pg 7)”. 

After initial attempts at revenue farming, Company officials aggressively introduced new taxes in an attempt to reduce their dependence on agrarian production, thus worsening the tax burden on the common man.  

As Prof Richards points out in his paper (Ref 1), “Land revenue continued to be the mainstay of the regime until the end of British rule in India, but its share of gross revenues was far less than under the Mughal emperors…To a larger degree, however, new taxes not imposed by the Mughals accounted for land revenue’s declining share. Company officials began early to diversify their tax base so that the new regime was not so overwhelmingly dependent upon agrarian production. “ 

In his research on the subject, Prof Maddison[iii] mentions the burden imposed by the administrative machinery of the State: “…British salaries were high: the Viceroy received £25,000 a year, and governors £10,000…From 1757 to 1919, India also had to meet administrative expenses in London, first of the East India Company, and then of the India Office, as well as other minor but irritatingly extraneous charges. The cost of British staff was raised by long home leave in the UK, early retirement and lavish amenities in the form of subsidized housing, utilities, rest houses, etc.” 

Prof. Richards mentions that although the Company “raised their revenue demands in each territory … to the highest assessments made by previous Indian regimes” they were still insufficient to “meet the combined administrative, military and commercial expenses  of the Company” 



Although there is a prevalent myth around British contribution to development if education and infrastructure in India, in reality, the situation was quite different. 

Prof Maddison writes that as late as 1936, the bulk of government expenditure was focused more on ensuring the stability of the empire than anything else: “Even in 1936, more than half of government spending was for the military, justice, police and jails, and less than 3 per cent for agriculture (pg 4)” 

Amidst all the paraphernalia of the “Raj”, public works and social expenditure was completely forgotten. As Prof. Richards notes“…the Company allocated negligible funds for public works, for cultural patronage, for charitable relief, or for any form of education….(confining) its generosity to paying extremely high salaries to its civil servants and military officers.  Otherwise parsimony ruled.” 

The following excerpt from Prof Maddison’s essay squarely debunks the notion that the British did a lot for education and were conscious of the wealth of ancient knowledge – some of which was still extant at the time. The contempt that Macaulay felt towards the knowledge and wisdom of ancient Hindus is evident from this quote: 

” We are a Board for wasting public money, for printing books which are less value than the paper on which they are printed was while it was blank; for giving artificial encouragement to absurd history, absurd metaphysics, absurd physics, absurd theology ... I have no knowledge of either Sanskrit or Arabic ... But I have done what I could to form a correct estimate of their value ... Who could deny that a single shelf of a good European library was worth the whole native literature of India and Arabia ... all the historical information which has been collected from all the books written in the Sanskrit language is less valuable than what may be found in the most paltry abridgements used at preparatory schools in England. (pg 5) 

Unsurprisingly, “(pg 6) The education system which developed was a very pale reflection of that in the UK. Three universities were set up in 1857 in Calcutta, Madras and Bombay, but they were merely examining bodies and did no teaching. Drop-out ratios were always very high. They did little to promote analytic capacity or independent thinking and produced a group of graduates with a half-baked knowledge of English, but sufficiently Westernized to be alienated from their own culture. 

“…the great mass of the population had no access to education and, at independence in 1947, 88 per cent were illiterate… at independence only a fifth of children were receiving any primary schooling.” 

Education was used as a tool “…to turn a tiny elite into imitation Englishmen and a somewhat bigger group into government clerks.”

If we turn our eyes to other areas of development, the picture does not improve.   

In spite of agriculture being - by far - the most significant part of the economy, “Little was done to promote agricultural technology. There was some improvement in seeds, but no extension service, no improvement in livestock and no official encouragement to use fertilizer. Lord Mayo, the Governor General, said in 1870, “I do not know what is precisely meant by ammoniac manure. If it means guano, superphosphate or any other artificial product of that kind, we might as well ask the people of India to manure their ground with champagne” (Pg 11). 

In his analysis of the various charges and expenses that the Company incurred, Professor Richards mentions how Company officials were extremely wary of any public works spending uinless it was for projects of direct use to the state.  

The following sentences are instructive and effectively blast the myth that the British did lasting good by building modern infrastructure in India: “The Company even failed to repair and maintain roads, river embankments, and bunded storage tanks for irrigation that had been the responsibility of earlier regimes.  When, in 1823, the Governor General in Council decided to devote a portion of anticipated surplus revenues to works of public improvement, the Court of Directors rejected this proposal. When, the Directors learned of heavy expenditures on buildings in the mid 1820’s, they wrote to the Governor General to condemn this extravagance.” 



To comprehend the extent of “unfair” trade norms, just one example would suffice (excerpted from this excellent essay: “The Colonial Legacy - Myths and Popular Beliefs[iv]”)

“As early as 1812, an East India Company Report had stated "The importance of that immense empire to this country is rather to be estimated by the great annual addition it makes to the wealth and capital of the Kingdom....."


Few would doubt that Indo-British trade may have been unfair - but it may be noteworthy to see how unfair. In the early 1800s imports of Indian cotton and silk goods faced duties of 70-80%. British imports faced duties of 2-4%!


As a result, British imports of cotton manufactures into India increased by a factor of 50, and Indian exports dropped to one-fourth! A similar trend was noted in silk goods, woollens, iron, pottery, glassware and paper…millions of ruined artisans and craftsmen, spinners, weavers, potters, smelters and smiths were rendered jobless and had to become landless agricultural workers.” 

The monopoly on trade in salt and opium was an important mainstay of the Company’s finances. Prof. Richards notes that “Together opium and salt produced on average 18.9 percent of gross revenues. In last fifteen years of Company rule their share climbed to 25.1 percent, as opium became one of the most valuable commodities sold in world commerce.”  

Prof. Richards has noted Edmund Burke’s report that accompanied the Select Committee of Parliament meetings in 1782-1783 to investigate the Company’s affairs. To quote Edmund Burke: 

“But at, or very soon after, the Acquisition of the Territorial Revenues to the English Company…a very great Revolution took place in Commerce as well as in Dominion;….From that Time Bullion was no longer regularly exported by the English East India Company to Bengal, or any part of Hindustan;.… A new Way of supplying the Market of Europe by means of the British Power and Influence, was invented; a Species of Trade (if such it may be called) by which it is absolutely impossible that India should not be radically and irretrievably ruined…”. 

This is how the pernicious system worked: “A certain Portion of the Revenues of Bengal has been for many Years set apart, to be employed in the Purchase of Good for Exportation to England, and this is called The Investment, The Greatness of this investment has been the standard by which the merit of the Company’s Principal Servants has been generally estimated; and this main Cause of the Impoverishment of India has generally been taken as a Measure of its Wealth and Prosperity…. 

This Export from India seemed to imply also a reciprocal Supply, which the Trading Capital employed in these Productions was continually strengthened and enlarged. But the Payment of a Tribute, and not a beneficial Commerce to that Country, wore this specious and delusive Appearance.” 



However, the high taxes, the heavy burden of state, the neglect of education and public works and unfair trade practices – these were only the tip of the iceberg. 

The most damning evidence of British exploitation was the irrefutable “drain of wealth” that took place over the period of two centuries. 

Prof. Williamson and Clingingsmith have noted that “between 1772 and 1815 there was a huge net financial transfer from India to Britain in the form of Indian goods. The “drain resulting from contact with the West was the excess of exports from India for which there was no equivalent import” included “a bewildering variety of cotton goods for re-export or domestic [consumption], and the superior grade of saltpeter that gave British cannon an edge”  

Javier Cuenca Esteban estimates these net financial transfers from India to Britain reached a peak of £1,014,000 annually in 1784-1792 before declining to £477,000 in 1808-1815 (Pg 9).” 

However even this high figures are significantly lower than the estimates by Prof John Richards (cited later in this essay). 

Like all other commentators, Maddison too has mentioned the debilitating effect of the drain of funds from India: “Another important effect of foreign rule on the long-run growth potential of the economy was the fact that a large part of its potential savings were siphoned abroad.  

This 'drain' of funds from India to the UK has been a point of major controversy between Indian nationalist historians and defenders of the British raj. However, the only real grounds for controversy are statistical. There can be no denial that there was a substantial outflow which lasted for 190 years. If these funds had been invested in India they could have made a significant contribution to raising income levels. (Pg 20)” 

The total ‘drain’ due to government pensions and leave payments, interest on nonrailway official debt, private remittances for education and savings, and a third commercial profits amounted to about 1.5 per cent of national income of undivided India from 1921 to 1938 and was probably a little larger before that… about a quarter of Indian savings were transferred out of the economy, and foreign exchange was lost which could have paid for imports of capital goods.  

Separately, Dadabhai Naoroji estimated the economic costs and drain of resources from India to be at least at 12m per annum. Here is an extract from one of his essays, “The Benefits of British Rule[v], 1871”  

“Financially: All attention is engrossed in devising new modes of taxation, without any adequate effort to increase the means of the people to pay; and the consequent vexation and oppressiveness of the taxes imposed, imperial and local. Inequitable financial relations between England and India, i.e., the political debt of ,100,000,000 clapped on India's shoulders, and all home charges also…


Materially: The political drain, up to this time, from India to England, of above ,500,000,000, at the lowest computation, in principal alone…The further continuation of this drain at the rate, at present, of above ,12,000,000 per annum, with a tendency to increase.”  

Prof. Richards mentions in his research that: “Between 1757 and 1859… ….Officials of the East India Company… tapped the productive people and resources of Bengal and the eastern Gangetic valley to fund the protracted military campaigns necessary to conquer India. Over the same century, these same resources also supplied the wherewithal for a century-long transfer of wealth from India to Great Britain….” 

“…Burke estimated that in the four years ending in 1780 the investment averaged no less than one million sterling and “commonly Nearer Twelve hundred thousand pounds”. This was the value of the goods sent to Europe “for which no Satisfaction is made”. The transfer continued without interruption and with formal approval from Parliament.” 

In 1793, this devious system of extortion was given official sanction and thus was paved the path to financial ruin: “By this 1793 Parliamentary directive, the Company was enjoined to take ten million current rupees (1 million sterling) each year for the investment from the territorial revenues of colonial India…. After 1793, the Company zealously maintained its annual investments. Between 1794 and 1810, the average annual cost of the investment was 1.4 million sterling.” 

“…In a recent contribution, Javier Cuenca Esteban …puts the “arguably minimum transfers” from India to Britain between 1757 and 1815, Plassey and Waterloo, at 30.2 million sterling. This figure is the estimate of exports from which there was no compensating import for India.” 

Post 1833, when the Company’s commercial operations ceased, the “drain” took the form of “Home Charges” which represented the expenses in Britain borne by the Indian treasury. 

These “Home Charges” were a huge burden on the finances and contributed to a sustained and continuous deficit in the budget throughout the 19th century.

As Prof Richards notes, “(pg 17) there were few years in which the Indian budget was not in deficit. For the entire period (1815 – 1859), deficits reached a cumulative total of 76.9 million sterling or an annual average of 1.7 million sterling”. 

This systematic drain was nothing short of a loot – albeit carried over 200 years and under the cover of colonial trade. It left the economy in shambles and reduce this great country from one of  the powerhouses of the world economy to a laggard which was barely able to sustain itself. 



The collective impact of these policies and system of exploitation was severe. 

In their preface to the research, Profs. Clingingsmith and Williamson have this to say: “India was a major player in the world export market for textiles in the early 18th century, but by the middle of the 19th century it had lost all of its export market and much of its domestic market…While India produced about 25 percent of world industrial output in 1750, this figure had fallen to only 2 percent by 1900.  

This table eloquently depicts the impact of almost two centuries of British colonial rule over India

B Shantanu

       Send your views to author

[i]Imperial Finance Under the East India Company 1762-1859” by John F Richards, Duke University (citing P J Marshall’s 1988 book “Bengal: the British bridgehead: eastern India”)

[ii]  “India’s Deindustrialization in the 18th and 19th Centuries” by David Clingingsmith, Jeffrey G. Williamson, Harvard University, August 2005 http://post.economics.harvard.edu/faculty/jwilliam/papers/GEHNIndianDeind.pdf

[iii]The Economic and Social Impact of Colonial Rule in India” (Chapter 3 of Class Structure and Economic Growth: India & Pakistan since the Mughals, 1971), Prof. Maddison

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