Naoroji’s ‘Drain of Wealth’ Approach: Guiding Indian Nationalism


February 9, 2021

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History | India

Beyond brief by-rote study of history at school about the ‘Grand Old Man of India’, not many Indians are aware of the true depth of the achievements of Dadabhai Naoroji. Mathematics prodigy at Bombay’s Elphinstone College, expatriate business representative in London, the first Asian to be elected to the House of Commons as MP in 1892. As much as these are great achievements, perhaps his greatest is his study of the systematic impoverishment of India by both the British East India Company and the subsequent Crown government.


Article by Dinyar Patel | Live History India

Among other things, he tied such ‘drain of wealth’—his seminal idea—to recurring and devastating famines and general lethargy of India’s economy. Naoroji lobbied in Britain for India’s empowerment, brought these truths to the world, triggered discussion and change. And he used his research and writing to fuel Indian nationalism both before and after co-founding the Indian National Congress in 1885.

In his deeply researched and fluent book, Naoroji: Pioneer of Indian Nationalism, Dinyar Patel, who taught in the department of history at the University of Southern California before taking up a position as an assistant professor of history at the S P Jain Institute of Management and Research (SPJIMR) in Mumbai, brings us more than the life and times of a remarkable man. He brings us the persistent fortitude and sparkling, inquisitive genius of Naoroji. This exclusive excerpt from Patel’s Naoroji details the process and application with which Naoroji, born to obscurity in Gujarat’s Navsari, constructed the irrefutable evidence of Britain rapidly, and massively, draining India’s wealth—more than a hundred years before high-profile post-colonial debates of the social-media age in Oxbridge:

Shuttling back and forth between London and Bombay in the late 1850s and early 1860s, while he rode the highs and lows of the cotton trade, Naoroji must have even more keenly felt the stark difference between mother country and colony. For England was the undisputed locus of power and prosperity: home to the newly established India Office, which took over the reins of power from the East India Company without interrupting the flow of wealth from the subcontinent. India, in contrast, lay shattered after the Mutiny of 1857 and enervated from a spate of deadly famines. It seemed to be the very byword for poverty and powerlessness.

Naoroji soon abandoned such anecdotal comparison in pursuit of detailed economic study of India. Between the late 1860s and early 1880s, he produced a prodigious amount of literature— containing extensive calculations, international comparisons, compilations of historical evidence, and refutation of government pronouncements and statistics—highlighting the stark impoverishment of Britain’s Indian subjects. Significantly, he established a direct causal link between poverty and British rule. “So far as my inquiries go at present, the conclusion I draw is, that wherever the East India Company acquired territory, impoverishment followed their steps,” he argued. The instrument of this impoverishment, Naoroji famously contended, was the “drain of wealth”— whereby as much as one- fourth of the annual tax revenue raised in India went into British coffers rather than being reinvested in the country. While its mechanisms were complex, Naoroji clearly understood that the drain was, fundamentally, a question of colonial policy. “I wonder when this Hydra headed policy will ever be broken,” he confided to a friend and political ally in Bombay, Behramji Malabari. “These Englishmen cannot understand that the wealth they carry away from this Country is the whole & sole cause of our misery. . . They take away our bread and then turn round asking us why we are not eating it.”

The Poverty of India

Between 1867 and 1880, Dadabhai Naoroji expounded upon the drain of wealth from India through a series of detailed papers and published statistics. He presented most of these papers in London, before British audiences. This was no mere coincidence: Naoroji felt duty-bound to change the tone of Indian policy debate in the capital of the empire. To this extent, in late 1866 he established the East India Association, a forum for discussion of Indian affairs that, in London as well as in a branch society in Bombay, drew a large cross section of bureaucrats, politicians, students, and intellectuals.

It is difficult to say why, precisely, Naoroji chose the late 1860s to launch into sustained discussion of Indian poverty and the drain. No letters or papers survive to explain his rationale. Quite likely, however, Naoroji was moved to action by twin crises unfolding in the subcontinent at the time. The American Civil War prompted the first crisis. Opening volleys from Fort Sumter’s cannons brought to a halt the South’s cotton trade with Britain, causing a spike in the price of Indian cotton. This benefited a handful of Indian cotton merchants, including Naoroji, while wiping out the last remaining weavers in the Indian countryside, who were no longer able to purchase raw materials. Once peace returned to the United States, the price of Indian cotton cratered. Indian merchants faced economic ruin— this was the reason Dadabhai Naoroji & Co. was forced to declare bankruptcy and temporarily shutter its London office. For India, the American Civil War was a one- two punch that sent financial shudders through both city and countryside, demonstrating the precariousness of the colonial economy.

The second crisis was far graver. In 1865, following a capricious monsoon, famine began stalking India’s eastern shores. Panic spread through the region of Orissa after the colonial governor coolly refused to intervene and provide emergency supplies of grain. By 1867, as much as one-third of Orissa’s population was dead. The Orissa famine was, for Naoroji, a stark example of India’s perilous economic and political position. It prompted him to investigate how mass famine had been a hallmark of British rule in India— and how the specter of starvation and disease had significantly worsened in the past de cade. “What an appalling, what a sad picture we have before us!” he concluded upon tabulating recent death figures. “Have all the wars of the past 100 years destroyed as many lives and property as the famines of the past eight years?” From the East India Association’s lectern, Naoroji began speaking with urgency about Indian poverty, mass famine, and the drain of wealth as interconnected phenomena. He first sought to establish the gravity of Indian poverty in order to highlight the country’s inability to bear further outflows of its meager resources and finances. Naoroji’s immediate task, therefore, was political in nature: urging swift policy changes that would acknowledge and rectify the drain.


Naoroji’s book, Poverty and Un-British Rule in India (1901)|

When Naoroji began speaking about poverty and the drain, however, he confronted a Himalayan obstacle. It was extraordinarily difficult to convince British audiences, both policymakers and the general public, that India was a fundamentally impoverished country. During the second half of the nineteenth century, this notion went against conventional wisdom in the United Kingdom—in spite of grim headlines emanating from the latest famine-stricken districts. How was poverty possible in a land that had produced the British nabobs of the previous century, one that continued to buoy the fortunes of the City of London, the empire’s financial heart, and fill British docks and ware houses with luxury goods of every sort? Could India really be a poor country when, year after year, an increasing number of Indian professionals, princes, and wealthy merchants streamed into London, consorting with the commercial and political elite of Britain and the empire? And wasn’t Naoroji— educated, Anglicized, and relatively wealthy by the mid-1860s— himself an example of imperial beneficence? As naive as these observations might seem today, they were important components of British imperial imagination. They were premised on the common belief that India, precisely because of its abundant wealth, was the linchpin of the empire’s prosperity and political, economic, and military strength. Famine was a bizarre aberration, the result of Indian laziness or fecundity rather than systemic poverty.

The British Indian government did not make Naoroji’s task any easier. Each year, mandarins in the India Office in Whitehall assembled the Moral and Material Progress Report, deploying official statistics to claim significant social and economic progress in the subcontinent. Many of these statistics, however, were simply wrong. In 1871, Naoroji addressed London’s Society of Arts, mentioning a recent India Office report given to Parliament. As proof of the “General Prosperity” of India, the report cited a “great excess of exports above imports,” a stunning 188 percent increase in exports during the 1840s and 1850s, and a 227 percent increase in imports in the same period. These were, an incredulous Naoroji stated, “fallacious statements.” And they were also symptomatic of a much larger problem. “I am constrained to say, after my residence in this country for fifteen years, that the knowledge of the public here about India is not only imperfect, but in some matters mischievously incorrect,” he declared. Due in part to such reports and statistics, there was “the almost universal belief that India is rich and prosperous, when it is not so.”

Naoroji’s attempts to hammer away at this universal belief were hampered by many factors other than ignorance, bad information, and rosy official pronouncements. There were, for example, par tic u lar derisory attitudes among Britons toward Indians. One irate Anglo- Indian, writing to the London Review in response to some of Naoroji’s opinions about Indian poverty, complained that Naoroji was simply repeating “the common native argument that the English have drained India of its treasure and reduced it to misery.” But what truly outraged the writer was that an Indian had the audacity to make these claims before an audience of eminent Britons— current and former officials and “many practical men”— and then publish his paper for distribution, something that suggested “a most mischievous character.”

Such were the attitudes that greeted Naoroji’s first forays into discussion of Indian economic matters. On May 2, 1867, he inaugurated the East India Association in London by delivering a paper titled “England’s Duties to India.” The title sounded innocuous enough. But before an audience that included eminent members of the India Office, men who helped compose the annual Moral and Material Progress Report, Naoroji detailed the horrific dimensions of the Orissa famine. The famine forced Naoroji to weigh the advantages and disadvantages of British colonial rule. “Security of life and property we have better in these times [under the British], no doubt,” he stated, “but the destruction of a million and a half lives in one famine is a strange illustration of the worth of the life and property thus secured.” While he lavished praise upon the British for granting India several supposed boons— “law and order,” “the enlightenment of the country” through Western education, and a “new political life”— Naoroji grappled with a fundamental tension between, on one hand, piecemeal social and political advancement and, on the other, unfathomable impoverishment.

Aside from broaching the topic of mass famine, Dadabhai Naoroji’s “England’s Duties to India” was significant in one other sense: it established his quantitative, statistical approach for proving the existence of Indian poverty. While his focus in this paper was India’s heavy financial tribute to its colonial master, Naoroji soon turned his attention toward the economic condition of the Indian people themselves. In July1870, he delivered another paper, “The Wants and Means of India,” at London’s Society of Arts. With a touch of irony, Charles Trevelyan—a hated figure in Ireland due to his mortality-inducing policies during the potato famine of the late 1840s—presided over the meeting. Naoroji posed a basic question to Trevelyan and other attendees: “Is India at present in a condition to produce enough to supply all its wants?”

In order to answer this question, Naoroji developed several innovative methods for quantifying and describing India’s stark poverty. First, and most significant, he made the first- ever estimates of the country’s gross income per capita (technically, gross production per capita). His calculations were simple and difficult to disprove. “The whole produce of India is from its land,” Naoroji observed. Working backward, he took land revenue figures for the year 1870–1871 and, by noting that the government collected around one-eighth of total produce in the form of land revenue, calculated that the gross product of the country per annum was in the neighborhood of £168 million. Adding gross revenue from opium, salt, and forest products, and factoring in coal production as well as revenue from appropriated land, Naoroji set a very conservative final estimate of £200 million. By simply dividing this amount by the total population of India, he arrived at a figure that caused scandal in London: a paltry 27 shillings per Indian subject. In comparison, average income in the United Kingdom was nearly twenty-five times higher, around £33 per head. Naoroji offered a more conservative estimate of 40 shillings per head in India in order to account for any industry and manufacturing, which he held to be negligible. Either figure, he cautioned, was undoubtedly too high, due to the concentration of wealth in a microscopic upper and middle class. “Can it be then a matter of any surprise,” he asked his audience, “that the very first touch of famines should so easily carry away hundreds of thousands as they have done during the past twelve years?”


Naoroji as Colossus who has bridged the gulf between India and England|Review of Review (1892)

Naoroji’s second method involved perfecting the art of statistical comparison. Figures on Indian poverty might startle and shock members of the British public, but well-formulated comparisons could also make them viscerally uncomfortable. In “The Wants and Means of India,” Naoroji pioneered economic comparisons between India and other countries, especially the United States and the United Kingdom. But it would take a few more years for him to make some of his most striking statistical comparisons. In another paper, “Poverty of India”— delivered in 1873 to a parliamentary committee but not published until 1876—he compared the plight of the average Indian peasant unfavorably with that of an Indian prisoner or coolie emigrant. Once more, Naoroji’s method of calculation was simple, turning the limited official statistical data on the country to his advantage. Consulting government reports, he located figures for basic provisions—food, clothing, and bedding—provided to inmates at Indian penitentiary facilities and recommended for coolies making their outward sea voyage from Calcutta. These provisions, Naoroji emphasized, were for “simple animal subsistence,” allowing for “not the slightest luxury . . . or any little enjoyment of life.” Yet, he declared, they were beyond the reach of the vast majority of Indians. Naoroji illustrated, province by province, how the amount expended on maintaining an inmate could, in some cases, be twice as high as the average income of a peasant. “Even for such food and clothing as a criminal obtains,” Naoroji concluded, “there is hardly enough of production even in a good season, leaving alone all little luxuries, all social and religious wants, and expenses of occasions of joy and sorrow, and any provision for a bad season.” This was a prophetic observation. Just a few years later, during the so- called Great Famine of Madras in 1876–1878, an American missionary recorded how starving weavers begged to be arrested so that they would at least receive some food while in jail.

Sapping Vital Blood

In Dadabhai Naoroji’s formulation, the Indian civil service— and, specifically, the lack of a significant number of Indians in this administrative corps— was the primary reason for Indian impoverishment. He posited a direct link between the preponderance of Britons ruling the country and the scale of the drain of wealth; this, in a nutshell, was the political corollary to the drain theory. For Naoroji, therefore, civil service reform was a subject of vital economic importance, a matter of life or death to millions of famine-weary Indian peasants.

Naoroji did not enunciate the political corollary until the 1870s. However, we can trace its roots back to his maiden political speech, delivered at the inauguration of the Bombay Association in August 1852. In this speech, Naoroji, then in his late twenties, suggested a link between faulty governance and poverty. The impoverishment of the Kunbis or peasants, he noted, might be the product of “bad administration.” Government administrators, “being drawn from England, do not, except after a long residence and experience, become fully acquainted with our wants and customs.” Consequently, these British officers were “often led, by their imperfect acquaintance with the country, to adopt measures calculated to do more harm than good.” The solution, therefore, was to recruit knowledgeable Indians for government service. In 1859, four years after relocating to Great Britain, Naoroji took up the case of the very first Indian candidate for the civil service, Rustomji Hirjibhai Wadia, who was unceremoniously barred from taking the service’s entrance examination by the India Office’s last-minute reduction of the age limit.

Although in Wadia’s case his pleas to authorities fell on deaf ears, Naoroji persisted in speaking and writing about the need for more Indian administrative officers. Like many other political reformers in Calcutta, Bombay, Madras, and elsewhere, he concentrated his energies on protesting against the formidable difficulties faced by Indian candidates: a low age limit; the fact that exams were only held in England, necessitating a long and costly voyage from the subcontinent; and the content of the exams, which privileged knowledge of European classics and literature over subjects such as Arabic and Sanskrit, where Indian candidates would have a significant advantage. Indian agitation led to some official concessions. In 1865, the India Office reversed its decision to further deemphasize Arabic and Sanskrit in exams after Naoroji submitted a petition on the topic, questioning the government’s commitment to fairness for aspiring Indian officers. Naoroji increasingly framed the civil service issue as one of Indian rights, dropping his earlier arguments about the problematic consequences of an Indian administration dominated by Britons unfamiliar with Indian culture and opinion.

Naoroji’s 1867 address before the East India Association, “England’s Duties to India,” represented another important transformation in his views about how the civil service caused poverty. It was at this moment that Naoroji suggested, for the first time, that India’s impoverishment was the result of a pronounced economic drain. While he did not use the term “drain” specifically—he spoke of financial tribute and “home charges”—Naoroji asserted that British rule had resulted, to date, in the transfer of a whopping £1.6 billion from the subcontinent to imperial coffers. Relying on parliamentary returns, he calculated that Great Britain continued to siphon, conservatively, £33 million each year from its Indian possessions, or roughly one-fourth of tax revenues collected in India.

Excerpted with permission from the book Naoroji: Pioneer of Indian Nationalism by Dinyar Patel (published by Harvard University Press). You can buy the book here.