The drain theory, as formulated by the nationalists, referred to the process by which, a significant part of India’s national wealth, was being exported to England for which India got no economic returns. In other words, India was made to pay an indirect tribute to the English nation. Dadabhai Naoroji in his paper entitled “England’s debt to India” was the first nationalist to put forward the Economic Drain theory wherein it was stated that he British were extracting wealth from India as the price of their rule in India. In fact out of the revenues raised in India nearly one fourth went out of the country and added to the resources of England. Consequently India was being continuously bled.
The drain was a continuous process that multiplied with the passage of time and manifested in different variety and forms. It began with the dual government in Bengal. The East Indian Company at the time kept aside a portion of the Indian revenue for their commercial investments. The situation got worsened as the British rule progressed in India. The drain of Indian wealth took many forms. The drain took the form of an excess of exports over imports. Another important constituent of the drain was the remittance to England of a part of their salaries, incomes and savings by English, civil military, railway employees lawyers and doctors. It also included the payment of the pensions and furlough allowances to the English officials in England by the Government of India.
Apart from this a large volume of the drain from India after 1858 was in the form of the Home Charges of the Government of India. The Home Charges referred to the expenditure incurred in England by the Secretary of State on behalf of the Indian Government. Another major source of the drain was the profits of private foreign capital invested in trade or industry in India. This especially included the investment in Railways in India.
Moreover,cost of most battles fought by the British in India against the Indian rulers was borne by the Indians.
The drain was evils of all the evils. It was impoverishing the country. Dadabhai Naoroji declared it as the real, the principal and even the sole cause of the sufferings and the poverty of India. It was estimated that nearly one half of India’s net annual revenue flowed out of the country. Transfer of national wealth abroad had an important impact on the income and employment within the country.
Needless to say, this drain of India’s wealth to England, in the form of salaries to British Officers posted in India. Home-charges and the profits made on the British capital invested in India, benefited England and diminished the sources for investment in India. Britain did not any longer have to send bullion to India to balance the accounts. Instead bullion was not sent out from India either to China or to Britain. External drain, however, was only one element of British exploitation of India, linked, with other sources of exploitation like heavy taxation and an unfavorable trade.
Contrary to the elementary principle of economic development that the surplus is generated for investment, the British siphoned off or drained the surplus and deliberately pushed India on the path of underdevelopment that finally culminated into ruination of the economy. The British benefited immensely from the plunder and exploitation of India.
Lord Curzon wrote : India is the pivot of our Empire… If the Empire loses any other of its Dominion we can survive, but we lose Indian the sun of our Empire will have set.