Pre independence History of Indian Economics

Indian Economy drain occurred in Colonial Period i.e. under British rule pre-independence. Economic drain occurred in two ways given below.

  1. Internal Drain
  2. External Drain

Dadabhai Naoroji described 6 factors which resulted in the external drain.

  1. India governed by a foreign government.
  2. India does not attract immigrants which bring labour and capital for economic growth.
  3. India pays for Britain's civil administrations and occupational army.
  4. India bears the burden of British empire building in and out of its borders.
  5. Opening the country to free trade was actually a way to exploit India by offering highly paid jobs to foreign personnel.
  6. The principal income-earners would buy outside of India or leave with the money as they were mostly foreign personnel.
  • In Naoroji's book 'Poverty' he estimated a 200–300 million pounds loss of revenue to Britain that is not returned.
  • The money from Railway services were being drained out of India; for instance the money being earned by the railways did not belong to India
  • India was paying tribute for something that was not bringing profit to the country directly, but some tribute was necessary as payment for the services that England brought to India such as the railways.
  • India was paying for services rendered despite the operation of the railway being already profitable for Britain.
  • British workers earning wages that were not equal with the work that they have done in India
  • Trade that undervalued India's goods and overvalued outside goods.
  • Englishmen were encouraged to take on high paying jobs in India, and the British government allowed them to take a portion of their income back to Britain.
  • East India Company was purchasing Indian goods with money drained from India to export to Britain, which was a way that the opening up of free trade allowed India to be exploited.
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Suggestion and Arguments presented by Dadabhai Naoroji to solve the problem of Economic Drain.

  1. Dadabhai Naoroji's work focused on the drain of wealth from India into England through colonial rule.
  2. One of the reasons that the Drain theory is attributed to Naoroji is his decision to estimate the net national profit of India, and by extension, the effect that colonisation has on the country.
  3. When elected to Parliament by a narrow margin of 3 votes his first speech was about questioning Britain's role in India.
  4. Naoroji explained that Indians were either British subjects or British slaves
  5. By giving institutions to India allow India to govern itself and as a result the revenue would stay in India
  6. Naoroji identified himself as an Imperial citizen that he was able to address the economic hardships facing India to an English audience.
  7. By presenting himself as an Imperial citizen he was able to use rhetoric to show the benefit to Britain that an ease of financial burden on India would have.
  8. Allowing the money earned in India to stay in India, tributes would be willingly and easily paid without fear of poverty
  9. Equal employment opportunities to Indian professionals who consistently took jobs they were over-qualified for.
  10. Indian labour would be more likely to spend their income within India preventing one aspect of the drain
  11. Allow India to develop industries
  12. Examine British and Indian trade to prevent the end of budding industries due to unfair valuing of goods and services
  13. Naoroji's work on the drain theory was the main reason behind the creation of the Royal commission on Indian Expenditure in 1896 in which he was also a member
  14. This commission reviewed financial burdens on India and in some cases came to the conclusion that those burdens were misplaced
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