What was the ‘Drain of Wealth’ theory? What was its significance?
- The ‘drain of wealth’ theory was put forward by DadabhaiNaoroji in his book Poverty and British Rule in India. He argued that a portion of national product of India was being drained away to Britain, in the form of – salaries and pensions of civil and military officials, interests on loans taken by the Indian Government from abroad, profits on foreign investment in India.
He highlighted that it retarded capital formation in India while the same portion of wealth accelerated the growth of the British economy and the surplus from the British economy re-entered India as finance capital, further draining India of its wealth.
It was very significant because
- It highlighted the true imperialistic and colonial aspect of British rule and how it had transformed India into a supplier of foodstuffs and raw materials to the metropolis, a market for metropolitan manufacturers and a field for the investment of British capital.
- It exposed the British argument that the growth of foreign trade and railways implied development for India. Development was, now, equated with industrialization and this industrialisation was to be based Indian and not foreign capital.
- It helped in rallying all sections of society around common economic issues. The concept of a drain was easily grasped by a nation of peasants for whom exploitation was a matter of daily experience.
- The nationalist agitation on economic issues served to undermine the ideological hegemony of alien rulers over Indian minds that the foreign rule was in the interest of Indians, thus exposing the myth of its moral foundations
This agitation was one of the stimulants for intellectual unrest and the spread of national consciousness during the moderate phase of freedom struggle(1875-1905).