Our Terms & Conditions | Our Privacy Policy
Oxfam, in its report “Takers not Makers” claims that imperialist Britain “extracted” $85 trillion from India, “enough to carpet London with £50 notes” four times over. Oxfam took this number from calculations others have done before. The origin of the claim goes back to Dadabhai Naoroji writing 125 years ago, who called the outflow drain. Oxfam uses the number to support a modern movement: a case for reparations that Britain should pay India. With British public finances in a rut, the report’s timing is not ideal. But how good is the case?
Numbers like these are more than a criticism of the British Raj’s policies. There are plenty of grounds to criticise the Raj — for example, it spent too little money on welfare and infrastructure and too much on the army. But drain and extraction does not criticise only public policy. It criticises a system. It is a case against the combination of colonialism and globalisation that made the nineteenth-century world a special time.
Private capital worldwide made heavy use of the open economy the British Empire protected, transacting goods, capital, labour, and knowledge more freely than in the mid-twentieth century when barriers of all kinds came into effect. In the twentieth century, Marxist intellectuals and nationalists said that this capitalism made India poor by draining surplus from India towards Britain. As global Marxist movements declined in the 1980s and the 1990s, the drain of India became obscure in academics. It never had much traction in academics anyway. The historian Kirti Chaudhuri called the drain theory “confused” economics “coloured by political feelings.” I have criticised the concept too.
Something changed around 2010 to revive interest in the idea. Radical critiques of globalisation and capitalism returned to campuses, social media, and popular histories after the devastating financial crisis. There was a huge backlash against Western capitalism, and the drain idea returned to academics.
That does not make it any more sound. Why did Chaudhuri say drain was “confused” economics? The figure of $85 trillion builds on three bases. First, in the 1760s, as the East India Company started sharing the governance of Bengal with the Nawab’s regime, a part of the taxes of Bengal was used to fund business investment (export of textiles). Second, in the nineteenth century, Indian taxes were used to fund an army that fought imperialist wars to no benefit of India. Third, India maintained an export surplus, which went to fund payments to Britain on mainly four heads: debt service, railway guarantees, pensions to expatriate officers, and repatriated profits on private investment. Naoroji said that these outflows were payment without benefit to India, a drain, and happened because India was a colony. Did he discount the benefits of these transactions?
The Company was a body of merchants who became kingmakers between 1757 and 1765, resulting in a government in Bengal where private and public interests often conflicted. No one knows how serious the conflict was since the Nawab was a partner in the rule. No matter, the case that tax was used for commerce is weak. Within a few years after the transition, the Parliament started taking control of Indian governance, which meant refusing to fund business with taxes. By 1805, the process was complete when Governor Cornwallis declared that “the duties of territorial government [would take] the place of buying and selling.” In between, public finance data are so patchy that it is impossible to find out how much of the Company’s commercial investment was funded by a budgetary grant, borrowings, and profits.
What is the big deal anyway? The Company’s investment of $60 million around 1800 was a tiny 0.06% of India’s GDP. Its textile business generated employment and externalities in India. And the real drain was not the export, but the profits upon exports. We are dealing with an almost invisible transaction, so small it was.
Consider the criticism of the army. British Indian budget, the argument went, paid for the Indian army, which fought wars beyond Indian borders, a subsidy Indian taxpayers paid to the Empire. This claim misreads what the land army really did. The reason it was very big and funded by India was that it was a deterrent to potential conflict amongst the 550 princely states. Interstate conflicts claimed enormous human and economic cost in the late-eighteenth century. The army ended that and effectively subsidised the defences of the princely states. Similarly, the British state subsidised Indian naval capability. Until World War I, the deployment of the army beyond India caused little controversy. The army protected the huge diaspora of Indian merchants and workers. Without the empire’s military might, we would not get Indians doing business in Hong Kong, Aden, Mombasa, or Natal. The War changed the benefit-cost estimates, and in the 1920s, the arrangement ended.
The third point, that export surplus was drain, is the most bizarre. India normally had a commodity export surplus, in effect payment for services purchased by India from Britain. Naoroji thought this was a waste of money. His followers insisted it was. But these claims follow no economic logic. No economics in the world will tell us that an outflow makes a country poor. That assessment depends on what value the payment creates at home. In activist history, there is no discussion of the value, because there is no acknowledgement there could be a value.
For every outflow from India to Britain, there was a value. In the nineteenth century, the biggest payments were business related. Foreign investment was value-generating in India. Railways, recent research shows, created enormous value and ended famines. Naoroji thought interest on the public debt was a waste of money. Critics said that borrowing in the cheapest money market of the world made sense.
The big puzzle of the economic history of colonial India is that vast numbers of Indians thought the Empire was a good deal
Hiring skilled people to work in India happened on a very large scale in these times, and their salaries were a part of the so-called drain. Consider the gains, though. Between 1860 and 1930, the fourth-largest cotton textile mill industry and the tropical world’s largest iron and steel industry emerged in India. Indian merchants who made money in foreign trade invested their profits in industry. The machines and the engineers came from Britain and, in steel, from the USA. The medical advances that saw the end of famines and epidemics had owed to the open borders to scientists researching tropical diseases in India. Technical schools and colleges set up by the princely states hired professors and administrators abroad.
The only definition by which these payments were drain or extraction was that there was a way to get the value and the positive externalities by other means more cheaply. If this cannot be shown, extraction or drain is a meaningless word that has no place in economic history.
The big puzzle of the economic history of colonial India is that vast numbers of Indians thought the Empire was a good deal. Of course, some made a lot of money thanks to the connections the Empire forged. But there were many others in that set, including such diverse interests as cotton merchants, millowners, commodity traders, princely rulers, the Punjab farmer, the Indian diaspora in Asia and Africa, and the depressed caste campaigners. A history that does not ask why so many Indians thought the Raj had something positive to offer them cannot ever be credible.
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
Comments are closed.