British Raj siphoned out $45 trillion from India: Utsa Patnaik
New Delhi: When renowned economist Utsa Patnaik began to sift through old tracts of British economic history in order to understand the nature of fiscal relations between London and colonial India, the fate of the Kohinoor wasn’t much in the news; Shashi Tharoor hadn’t yet spoken in favour of reparations at Oxford University-a speech which went viral; and not many books had been written about the thousands of Indian soldiers who fought under the British flag in the empire’s many wars overseas.
[Spoiler (click to open)]While the past few years have shed additional light on the colonial experience, there is much that we still do not know. For example, how much money was really taken out of India? In a collection of essays published recently by Columbia University Press, Patnaik attempts to make a comprehensive estimate. Over roughly 200 years, the East India Company and the British Raj siphoned out at least £9.2 trillion (or $44.6 trillion; since the exchange rate was $4.8 per pound sterling during much of the colonial period).
To put that sum in context, Britain’s 2018 GDP estimate-a measure of annual economic output-is about $3 trillion. In the colonial era, most of India’s sizeable foreign exchange earnings went straight to London-severely hampering the country’s ability to import machinery and technology in order to embark on a modernisation path similar to what Japan did in the 1870s. The scars of colonialism still remain, Patnaik says. And yet, in an India where historical slights are endlessly litigated and towns are arbitrarily renamed, an adequate accounting of the enduring burden of colonialism is perhaps yet to be undertaken. Excerpts from an interview:
In a recent paper, you suggest Britain drained out nearly $45 trillion of wealth from India. Could you put that quantum of money in perspective and what difference it would have made to the Indian economy?
Between 1765 and 1938, the drain amounted to £9.2 trillion (equal to $45 trillion), taking India’s export surplus earnings as the measure, and compounding it at a 5% rate of interest. Indians were never credited with their own gold and forex earnings. Instead, the local producers here were ‘paid’ the rupee equivalent out of the budget-something you’d never find in any independent country. The ‘drain’ varied between 26-36% of the central government budget. It would obviously have made an enormous difference if India’s huge international earnings had been retained within the country. India would have been far more developed, with much better health and social welfare indicators. There was virtually no increase in per capita income between 1900 and 1946, even though India registered the second largest export surplus earnings in the world for three decades before 1929.
Since all the earnings were taken by Britain, such stagnation is not surprising. Ordinary people died like flies owing to under-nutrition and disease. It is shocking that Indian expectation of life at birth was just 22 years in 1911. The most telling index, however, is food grain availability. Because the purchasing power of ordinary Indians was being squeezed by high taxes, the per capita annual consumption of food grains went down from 200kg in 1900 to 157kg on the eve of World War II, and further plummeted to 137kg by 1946. No country in the world today, not even the least developed, is anywhere near the position India was in 1946.
What was the system in place to orchestrate this drain of wealth? Why wasn’t there any large-scale local opposition to it?
All the colonising powers put in place tax collection systems. The very name for the district administrator was ‘Collector’. When the Company first got revenue collecting rights in Bengal in 1765, its employees went completely mad with avarice. R.C. Dutt, a civil service officer in the British Raj, documented that between 1765 and 1770, the Company trebled the tax revenue in Bengal, compared to the erstwhile Nawab’s regime. You know what that means for a peasant who is already quite poor? The Nawab was collecting sufficiently high taxes, so when the Company took over and forcibly trebled collections over five years, people were driven into starvation. There was a massive famine in Bengal in 1770. Out of a population of 30 million, the British themselves estimated that 10 million died.
The market is an amazing thing: it obscures real relationships. A large part of the producer’s own tax payment simply got converted into export goods, so the Company got these goods completely free. The later mechanism after the Crown took over was a further development using bills of exchange. The only Indian beneficiaries of this clever, unfair system of linking trade with taxes were the intermediaries or dalals. Some of modern India’s well-known business houses made their early profits doing dalali for the British. Income tax on businesses and professionals was virtually non-existent until WWII.
The world has changed considerably since the 19th century and China’s recent foray into Africa is sometimes referred to as new age imperialism…
It would be quite incorrect to call either Chinese or for that matter Indian entrepreneurs in Africa as modern imperialists. This is a ploy that the North uses to deflect attention from the crimes that they committed against our people, after getting forcible political control. Britain and other countries taxed the colonized, took their foreign earnings, and drove them into hunger.
Chinese and Indian entrepreneurs in Africa are merely trying to do business in agreement with independent governments. We can never hope to replicate the development path that Northern countries followed. They dealt with rural displacement and rising unemployment through massive, permanent out-migration, mainly to the Americas. That option is not open to labour-surplus India or China. We need to develop an industrialization strategy that preserves employment and livelihoods.
As an economist interested in history, what is your view on the idea of reparations? Should Britain return the large sums of money that you suggest it drained out of India?
Not only Britain, but the whole of today’s advanced capitalist world flourished on the drain from India and other colonies. Britain was too small to absorb the entire drain from colonial India. So it became the world’s largest capital exporter, which aided the industrial development of Continental Europe, the U.S., and even Russia. The infrastructure boom in these countries would not have been possible otherwise.
Colonial drain helped to create the modern capitalist world, from North America to Australia-all regions where European populations had settled. The advanced capitalist world should set aside a portion of its GDP for unqualified annual transfers to developing countries, especially to the poorest amongst them. Britain, in particular, morally owes reparations for the 3 million civilians who died in the Bengal famine because it was an engineered famine.
[Spoiler (click to open)]While the past few years have shed additional light on the colonial experience, there is much that we still do not know. For example, how much money was really taken out of India? In a collection of essays published recently by Columbia University Press, Patnaik attempts to make a comprehensive estimate. Over roughly 200 years, the East India Company and the British Raj siphoned out at least £9.2 trillion (or $44.6 trillion; since the exchange rate was $4.8 per pound sterling during much of the colonial period).
To put that sum in context, Britain’s 2018 GDP estimate-a measure of annual economic output-is about $3 trillion. In the colonial era, most of India’s sizeable foreign exchange earnings went straight to London-severely hampering the country’s ability to import machinery and technology in order to embark on a modernisation path similar to what Japan did in the 1870s. The scars of colonialism still remain, Patnaik says. And yet, in an India where historical slights are endlessly litigated and towns are arbitrarily renamed, an adequate accounting of the enduring burden of colonialism is perhaps yet to be undertaken. Excerpts from an interview:
In a recent paper, you suggest Britain drained out nearly $45 trillion of wealth from India. Could you put that quantum of money in perspective and what difference it would have made to the Indian economy?
Between 1765 and 1938, the drain amounted to £9.2 trillion (equal to $45 trillion), taking India’s export surplus earnings as the measure, and compounding it at a 5% rate of interest. Indians were never credited with their own gold and forex earnings. Instead, the local producers here were ‘paid’ the rupee equivalent out of the budget-something you’d never find in any independent country. The ‘drain’ varied between 26-36% of the central government budget. It would obviously have made an enormous difference if India’s huge international earnings had been retained within the country. India would have been far more developed, with much better health and social welfare indicators. There was virtually no increase in per capita income between 1900 and 1946, even though India registered the second largest export surplus earnings in the world for three decades before 1929.
Since all the earnings were taken by Britain, such stagnation is not surprising. Ordinary people died like flies owing to under-nutrition and disease. It is shocking that Indian expectation of life at birth was just 22 years in 1911. The most telling index, however, is food grain availability. Because the purchasing power of ordinary Indians was being squeezed by high taxes, the per capita annual consumption of food grains went down from 200kg in 1900 to 157kg on the eve of World War II, and further plummeted to 137kg by 1946. No country in the world today, not even the least developed, is anywhere near the position India was in 1946.
What was the system in place to orchestrate this drain of wealth? Why wasn’t there any large-scale local opposition to it?
All the colonising powers put in place tax collection systems. The very name for the district administrator was ‘Collector’. When the Company first got revenue collecting rights in Bengal in 1765, its employees went completely mad with avarice. R.C. Dutt, a civil service officer in the British Raj, documented that between 1765 and 1770, the Company trebled the tax revenue in Bengal, compared to the erstwhile Nawab’s regime. You know what that means for a peasant who is already quite poor? The Nawab was collecting sufficiently high taxes, so when the Company took over and forcibly trebled collections over five years, people were driven into starvation. There was a massive famine in Bengal in 1770. Out of a population of 30 million, the British themselves estimated that 10 million died.
The market is an amazing thing: it obscures real relationships. A large part of the producer’s own tax payment simply got converted into export goods, so the Company got these goods completely free. The later mechanism after the Crown took over was a further development using bills of exchange. The only Indian beneficiaries of this clever, unfair system of linking trade with taxes were the intermediaries or dalals. Some of modern India’s well-known business houses made their early profits doing dalali for the British. Income tax on businesses and professionals was virtually non-existent until WWII.
The world has changed considerably since the 19th century and China’s recent foray into Africa is sometimes referred to as new age imperialism…
It would be quite incorrect to call either Chinese or for that matter Indian entrepreneurs in Africa as modern imperialists. This is a ploy that the North uses to deflect attention from the crimes that they committed against our people, after getting forcible political control. Britain and other countries taxed the colonized, took their foreign earnings, and drove them into hunger.
Chinese and Indian entrepreneurs in Africa are merely trying to do business in agreement with independent governments. We can never hope to replicate the development path that Northern countries followed. They dealt with rural displacement and rising unemployment through massive, permanent out-migration, mainly to the Americas. That option is not open to labour-surplus India or China. We need to develop an industrialization strategy that preserves employment and livelihoods.
As an economist interested in history, what is your view on the idea of reparations? Should Britain return the large sums of money that you suggest it drained out of India?
Not only Britain, but the whole of today’s advanced capitalist world flourished on the drain from India and other colonies. Britain was too small to absorb the entire drain from colonial India. So it became the world’s largest capital exporter, which aided the industrial development of Continental Europe, the U.S., and even Russia. The infrastructure boom in these countries would not have been possible otherwise.
Colonial drain helped to create the modern capitalist world, from North America to Australia-all regions where European populations had settled. The advanced capitalist world should set aside a portion of its GDP for unqualified annual transfers to developing countries, especially to the poorest amongst them. Britain, in particular, morally owes reparations for the 3 million civilians who died in the Bengal famine because it was an engineered famine.