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    Drain theory argues that a country's economy can be negatively affected by an outflow of valuable assets like money and goods. Dadabhai Naoroji first developed the drain theory in 1901 to explain how British colonial rule in India systematically drained resources through three types of transfers: civil servant salaries, military expenditures, and loan interest payments. This drain manifested as India's exports exceeding imports without economic benefit. It depleted India's productive capital and hampered development by diverting funds that could have been invested domestically instead to Britain. The drain theory analyzed how colonial administration in India caused poverty by siphoning wealth out of the country.

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    DRAIN THEORY AND ITS DEBATE

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    Drain theory argues that a country's economy can be negatively affected by an outflow of valuable assets like money and goods. Dadabhai Naoroji first developed the drain theory in 1901 to explain how British colonial rule in India systematically drained resources through three types of transfers: civil servant salaries, military expenditures, and loan interest payments. This drain manifested as India's exports exceeding imports without economic benefit. It depleted India's productive capital and hampered development by diverting funds that could have been invested domestically instead to Britain. The drain theory analyzed how colonial administration in India caused poverty by siphoning wealth out of the country.

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    245 views14 pages

    Drain Theory and Its Debate

    Uploaded by

    Priya Bhardwaj
    Drain theory argues that a country's economy can be negatively affected by an outflow of valuable assets like money and goods. Dadabhai Naoroji first developed the drain theory in 1901 to explain how British colonial rule in India systematically drained resources through three types of transfers: civil servant salaries, military expenditures, and loan interest payments. This drain manifested as India's exports exceeding imports without economic benefit. It depleted India's productive capital and hampered development by diverting funds that could have been invested domestically instead to Britain. The drain theory analyzed how colonial administration in India caused poverty by siphoning wealth out of the country.

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    of 14

    DRAIN THEORY

    AND
    ITS DEBATE
    Presentation by:- Kiran
    Drain theory?
    The Drain of Wealth Theory is the idea that a
    country’s economy can be negatively affected by
    the outflow of valuable assets, such as money and
    goods, from the country.

    This theory is also referred to as “capital flight”.


    Dadabhai Naoroji’s Theory of the
    Drain of Wealth
    The ‘Drain Theory’ was first developed by Dadabhai
    Naoroji himself in a series of speeches and writings
    subsequently published in 1901 in a volume entitled
    Poverty and un-British Rule in India.
    The essence of the drain theory is that the
    unilateral transfers that India was compelled to
    make to Britain systematically stripped the country
    of resources and thus perpetuated poverty.
    Three types of drain
    . First, the most important item was the remittance
    to England of a proportion of salaries, incomes, and
    saving by civil, military employees of the British origin,
    as well as by professionals such as lawyers and
    doctors

    The second item was military expenditure.


    The third item was the remittances made in
    sterling of interest on loans for construction and
    maintenance of public works such as railways,
    irrigation works, etc
    Drain of Wealth Theory –
    Background
    • According to the mercantilist theory, an economic
    drain occurs when gold and silver leave the country as
    a result of an unfavourable trade balance.

    • The British government enacted a number of


    measures to restrict or prohibit the importation of
    Indian textiles into the country
    Drain of Wealth Theory -
    Features
    The exploitation of Indian resources was a hallmark
    of the colonial period.
    Britain's primary motivation for conquering India
    was to own a constant source of cheap raw
    materials to feed its own industrial base in Britain
    Indians's income was spent on costly imports of
    finished goods from Britain, making Britain richer at
    the expense of India
    Drain of Wealth Theory -
    Process
    • The revenues collected from India were used to pay
    the salaries and pensions of British civil and military
    officials working in India, the interest on loans taken
    out by the Indian government, and the profits of
    British capitalists in India. This was one method by
    which money was being sucked out of India.
    • The drain manifested itself as an excess of exports
    over imports for which India received no economic
    or material benefit.
    Factors that caused External
    Drain
    External rule and administration in India.
    Funds and labour needed for economic
    development was brought by immigrants
    but India did not draw immigrants.
    Major earners in India during British rule
    were foreigners. The money they earned
    were never invested in India.
    Drain of Wealth Theory -
    Consequences
    A large portion of these resources, which could have
    been invested in India, were taken and siphoned off
    to England.

    The government's massive public debt and interest


    payments necessitated an increase in the tax burden
    on the people of India, which was highly regressive in
    nature.

    • The drain effectively depleted India's productive capita


    resulting in a capital shortage that hampered industria
    development.
    Impacts of Drainage of
    Wealth
    The drain affected the country’s prospects of
    employment and income and its overall
    economic growth. When taxes paid by the
    people are spent in the country, the money
    circulates among the people, which helps grow
    trades, industries, and agriculture and
    eventually reaches the people’s masses.
    Conclusion
    The Theory of Wealth Drain was developed by Indian
    nationalist thinkers primarily to
    analyze the root causes of poverty in India. The drain, as
    defined by nationalists, was the
    transfer of wealth and commodities from India to England
    without the former receiving any
    economic, commercial, or material returns. As a result, the
    Drain in Indian terms inevitably
    took the form of an excess of export over import. The Drain
    of Wealth was commonly
    referred to as "a phenomenon of colonial rule."
    References:-
    Dadabhai Naoroji and the Drain Theory 1965
    by B.N. Ganguli (Author)
    Economic Thoughts of Dadabhai Naoroji 2001
    by Prayag Das Hajela

    https://www.studyiq.com
    https://www.britannica.com
    https://www.degruyter.com

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