Utsa Patnaik challenges orthodox economic histories of Britain’s industrial transition and the relationship between Britain and colonised India. Central to her work is a revisiting of ‘the drain of wealth’ whereby Indian producers received payments for exported goods from the taxes they had themselves paid, initially to the East India Company, and later to the British Crown. First highlighted by Dadabhai Naoroji and RC Dutt in the early years of the twentieth century, the drain was subsequently overlooked until Patnaik once more drew attention to its magnitude and the mechanism behind this ‘unilateral transfer of resources abroad’ (Patnaik 1984: 54). By requiring that foreign purchasers of Indian goods used Bills of Exchange denominated in rupees, which were exclusively available for purchase with gold or sterling in London, the British prevented foreign exchange flowing back to Indian producers and exporters. Instead, Indian producers were paid of out the portion (approximately one third) of tax revenue that was transferred to London as ‘Home Charges’. Thus, Indian producers were paid out of their own taxes, while British trade deficits were subsidised by Indian producers in the form of sterling or gold deposited in London by foreign purchasers of Indian goods. As such, the ‘large capital exports from Britain from the 1870s onwards, which built US roads, railways and factories, depended crucially on Britain’s ability to siphon off India’s forex [foreign exchange] earnings’ (Patnaik 2017: 302).
Patnaik’s later work has also examined JM Keynes’ influence on Indian economic policy. In Keynes’ own writings on the Indian budget, ‘a studied silence was always maintained on how exactly rupees in the Indian budget ended up as gold and sterling with Britain’ (Patnaik 2018: 35). Patnaik also notes that the economic management tools Keynes’ advocated to raise finance for the British war effort were implemented in Bengal during 1943-44, while they were rejected as unacceptably ‘vicious’ and burdensome in Britain. Keynes’ policy influence is charged by Patnaik with directly resulting in the three million deaths that occurred during the Bengal famine. This final pre-Independence drain of resources followed the extraction of what Patnaik calculates to be £9,184.41 billion between 1765 and 1938 (Patnaik 2017: 311). While noting that Britain is not rich enough to repay even a fraction of what it extracted from India (and that such repayment could never compensate for the loss of life or frustration of economic and technological development that accompanied this extraction), Patnaik does believe it is ‘practicable for the industrial nations as a whole to repay the transfers which they took’ provided that their scholars ‘come to terms with the real drivers and the real history of imperialism’ (Patnaik 2017: 312).
This is what Patnaik sets out to do in A Theory of Imperialism (Patnaik and Patnaik 2016). Here Patnaik argues that since metropolitan capitalism requires commodities that cannot be produced in temperate zones, imperialism emerges as the imposition of income deflation (declining wages relative to prices) on the people of the peripheries, ‘in order to squeeze out larger and larger supplies of a range of commodities required in the metropolis, without bringing into play the problem of increasing supply price that would threaten the value of money [i.e., purchasing power] in the metropolis’ (Patnaik and Patnaik 2016: 145). Patnaik thus provides a language through which to grasp not only the historical ‘drain’ of wealth which has underwritten the economic trajectories taken by Britain and India. She also sheds light on the continuity of imperialism in the post-colonial period where it operates through policies that reduce purchasing power (especially but not exclusively in the Global South) by cutting government expenditure, or disproportionately taxing non-capitalist classes as opposed to transnational corporations and wealth elites.
Patnaik, Utsa 2017. ‘Revisiting the “Drain”, or Transfer from India to Britain in the Context of Global Diffusion of Capitalism’ in Shubhra Chakrabarti and Utsa Patnaik (eds.) Agrarian and Other Histories: Essays for Binay Bhushan Chaudhuri. Tulika Books, New Delhi.
Patnaik, Utsa 1984. ‘Transfer of Tribute and the Balance of Payments in the CEHI’. Social Scientist 12 (12): 43-55.
Patnaik, Utsa. 2006. ‘The Free Lunch: Transfers from the Tropical Colonies and Their Role in Capital Formation in Britain during the Industrial Revolution,’ in K. S. Jomo (ed.) Globalization under Hegemony. Oxford University Press, New Delhi.
Patnaik, Utsa. 2018. ‘Profit Inflation, Keynes and the Holocaust in Bengal, 1943-44’, Economic & Political Weekly 53 (42): 33-43.
Patnaik, Utsa and Prabhat Patnaik. 2016. A Theory of Imperialism. Columbia University Press, New York.
Sreevatsan, Ajai 2018. British Raj siphoned out $45 trillion from India: Utsa Patnaik, Live Mint
What was ‘the drain’ and how was it facilitated?
How does focusing on ‘the drain’ impact our understanding of world economic history?
What is Patnaik’s ‘theory of imperialism’ and how does it differ to contemporary usages of the term?
Discuss the significance of Patnaik’s rethinking of Keynes’ influence in the colonial context.
Submitted by Paul Robert Gilbert