The British Raj extracted $65 trillion from India: Fact or fiction?

Oxfam, in its report Takers not Makers, claims Imperial Britain “extracted” $65 trillion from India between 1765 and 1900 in today’s money, “enough to carpet London with £50 notes” four times over, taking these numbers from calculations others have done before. 

The origins go back to Dadabhai Naoroji, who, writing 125 years ago, called the outflow a “drain.” Oxfam uses the number to support a modern-day movement: a case for reparations Britain should pay India.

Also Read: Mint Quick Edit | Britain’s great plunder of India: Even worse than we thought

Such numbers are more than a criticism of Raj policies. There are plenty of grounds to criticize these. For example, it spent too little on welfare and infrastructure and too much on the army. 

But extraction data doesn’t just put public policy but the entire colonial system to critical scrutiny. It is a case against the combination of colonialism and globalization that made the 19th century special.

Private capital worldwide made heavy use of the open economy protected by the British Empire, with goods, capital, labour and knowledge transacted more freely than in the mid-20th century, when barriers of all kinds went up. 

In the 20th century, Marxist intellectuals and nationalists said this capitalism had impoverished India by draining India’s surplus to Britain. As global Marxist movements declined in the 1980s and 90s, the drain receded into academic obscurity. Historian Kirti Chaudhuri called the drain theory “confused” economics, “coloured by political feelings.” I have criticized it too.

Around 2010, radical critiques of globalization and capitalism returned to campuses, social media and popular histories after the devastating 2008 financial crisis. There was a backlash against Western capitalism, and the drain idea returned to academics. That, however, does not make it sound.

The figure of $65 trillion is built on three bases. 

First, in the 1760s, as the East India Company (EIC) started sharing the governance of Bengal with the Nawab’s regime, a part of the taxes of Bengal were used to fund business investment (export of textiles). 

Second, in the 19th century, Indian taxes were used to fund an army that fought imperialist wars. 

Third, India maintained an export surplus, which went to fund payments to Britain mainly under four heads: debt service, railway guarantees, pensions to expatriate officers and repatriated profits on private investment. 

Naoroji said these outflows did not benefit India and happened because the country was a colony. Did he discount the benefits of these transactions?

Also Read: When the British chose pragmatism as strategy

The EIC’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. The real drain was not exports, but the profits upon exports. These transactions were so small, they were almost invisible.

Consider criticism of the army. 

The British Indian budget, the argument went, paid for an Indian army that fought wars beyond Indian borders, a subsidy Indian taxpayers paid to the Empire. 

This claim misreads what the land army really did. It was funded by India as a deterrent to potential conflict among its 550 princely states. Similarly, the British state subsidized Indian naval capability. 

Until World War I, army deployment 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 India’s export surplus was a drain is the most bizarre. India had a commodity export surplus, which in effect paid for services purchased by India from Britain. Naoroji thought this was a waste of money. The evidence of this, however, is scarce.

For every outflow from India to Britain, the former got value. In the 19th century, the biggest payments were business related. Foreign investments generated value in India. And the railway network built in India, as recent research shows, created enormous value, even helping end famines. 

Naoroji thought interest payments on public debt was a waste. But borrowing in the cheapest money market of the world made sense.

Skilled people were hired globally on a large scale to work in India. Their salaries have been clubbed with the so-called drain. But consider the gains. 

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 on foreign trade invested their profits in industry. 

Machines and engineers came from Britain (and in steel from the US). The medical advances that saw the end of famines and epidemics were owed to scientists studying tropical diseases in India. Technical schools and colleges set up by princely states hired professors and administrators abroad. 

The only definition by which these payments were a ‘drain’ was that the value and positive externalities India got may have been overpriced, given cheaper alternatives. If this cannot be shown, ‘extraction’ is a meaningless word.

Also Read: Colonialism stole India’s future, not just the Kohinoor

The big puzzle of the economic history of colonial India is that a vast number of Indians thought the Empire was a good deal. Some made a lot of money, thanks to the connections it forged. Cotton merchants, mill owners, commodity traders, princely rulers and others gained too. 

A history that does not ask why so many Indians thought the Raj had something positive to offer them falls short of credibility.

The author is professor, economic history, at the London School of Economics.