The Colonial Drain and the Making of the Modern World

Outline

● Multiple dimensions of colonialism's lasting impact on India's political economy and society – Economic – Political – Sociological – Moral – Psychological

● Our primary focus will be on the political economy while alluding to other aspects

The Big Picture

An Ode to Angus Maddison

Contd..

Five parts of the “Drain”

● Trade ● Industry ● Finance ● Imperial fiscal and monetary policies ● “Home” charges

– Each of these had political economy consequences for both India and Britain

Drain theory

● Fundamental in building the early nationalist movement

● Dadabhai Naoroji, M.G. Ranade, and R.C. Dutt and their followers showed how the five aspects of drain combined and worked as tributes paid by the colonised society to its colonisers

● Its effectiveness and rhetorical value for the nationalists lay in its simplicity – A scaled-up version of the standard peasant

political economy story

Trade

● Trade relationship between India and colonial Europe had matured by 1757 when the Battle of Plassey formally inaugurated British imperialism in India – East India Company founded in 1600

● Trade in 17th and early 18th centuries largely consisted of Indian textile exports paid for by bullion plundered from the New World – Indian textiles were also (for a while) a part of the

Atlantic slave trade

Post-Plassey Trade and the origins of the “Drain” ● The East India Company now directly controlled

Indian territory – Could tax people living in regions under direct

control of the company

● The Company's tax receipts were used to finance exports from India – India thus paid for her own exports

● The DRAIN ● Would continue in different forms for the next ~200 years

(yes, for a few years even after WW-II and Indian independence)

Contd...

● This trade-derived “drain” was the Ponzi scheme that defined 18th century colonial relationship between India and Britain – Profoundly impacted both countries

● and other parts of the world too (Americas and Africa in particular)

● This initial drain had nothing to do with 'raw material' and 'market' story of British colonialism beginning early decades of 19th century

How big was this “drain”

● Over thirty lakh rupees in 1758 ● By 1801, this drain accounted for 9% of GNP

from Company controlled territories in India. – However, this was ~30% of British domestic savings

at the time – Played a pivotal role in fuelling the fledgling

industrial revolution under way in Britain (along with similar drain from Caribbean colonies)

Contd...

● The “Great Transformation” in Britain would have been even more disruptive without the “drain” from the colonies

The “Drain” gets more sophisticated

● The changing composition of Drain was largely determined by two things – Rapid industrialisation in Britain – New territorial conquests in India (leading to greater

tax revenue)

● The first change happened after the boom in Manchester – Cotton textile export from India no longer made

sense – Short-staple Indian cotton was not very useful for

the new mills

Contd..

● but some exportable commodity had to take the place of cotton – The “pay for your exports” Ponzi scheme was too

lucrative to let go

● Solution – New colonies (or at least trading partner) – New commodity

Drain on (opium) high

The next turn..

● came when other European nations (including new Europe) and Japan began to industrialise and in some cases leap ahead of Britain – this is when a surge in demand sees India becoming

an exporter of raw materials – and a market for finished textiles and industrial

machinery

● India played a major role in helping Britain's BoP – Once again at detrimental costs to India

Contd...

● India saw a net outflow of capital ● Indian capital was critical to British investments

in established colonies (including USA) and new conquests

● Very direct role in bootstrapping US industrialisation – By enabling the large-scale migration

Finally, India as a captive market

● India fulfilled its role as the “jewel” in the empire's crown

● Following India's de-industrialisation, “free” trade was used as an ideological excuse to keep any new industries from coming up in India – The trigger for rise of economic nationalism

Drain, not just of capital

● India also provided critical labour for the empire – Especially after 1834 abolition of slavery – Close to 20 lakh indentured labourers were settled

in Mauritius, Fiji, South Africa, Sri Lanka, etc ● Significant Indian population in these countries ● Important factor even in contemporary political economy

● This labour surplus was available for “export” because of the de-industrialisation following capital-Drain

Post-Gandhi “Drain”

● Britain becomes a debtor nation (WW1, Great Depression)

● Indian industry rebuilds – especially textile mills ● The drain now takes the form of finance

– Home Charges are revised – War charges – Sterling credits during WW2

Drain theory helps build the Nationalist Movement

● Everything that we have described thus far was worked out by the early nationalist economic historians between ~ 1860 and 1910

● Indian nationalist movement was “firmly rooted in an understanding of the nature and character of colonial economic domination and exploitation”

● (Chandra et al., 1987)

● Even when colonialism posed social/cultural/psychological challenges, Indian intelligentsia until about 1860 was upbeat about its economic prospects

The “Triumvirate”

First Big Book on Drain Theory (1891)

Contd...

● “If India is poor today, it is through the operation of economic causes” – R.C. Dutt

● For 19th century India this is a remarkable conclusion to draw – The beginning of the unravelling of the colonial

economic structure that had subjugated India

Contd..

● The solution lay, these early nationalists concluded lay in rapid industrialisation, but using INDIAN CAPITAL – Went against the dictates of prominent economists

like Mill and Marshall – Would come to the fore during the Swadeshi

Movement of 1905 – These nationalists reject the British claim of the

usefulness of investments like the Railways

Sources

● A. Mukherjee (2010), uploaded on Moodle provides the basic framework

● Opium Trade pictures: – http://forums.sulekha.com/forums/books/opium-

financed-british-rule-in-india-amitav-ghosh-s-new-book-36393.htm

– Wikepedia image for “Sea of Poppies” book cover