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Almost a hundred years back, Dadabhai Naoraji wrote ‘Poverty and Un-British Rule in India’. Naoraji was the first to prove using statistics that colonialism was not a ‘mutually beneficial’ interaction between nations, as the coloniser’s claimed, but that the British Empire had developed a system of looting surplus value from India to Britain. This was also an important marker separating it from previous invaders who settled down in the Indian sub-continent—the RSS, by claiming ‘600 years of slavery’, first under the Muslims and then the British, seeks to erase this distinction.
The question today remains whether in India after 1947, the drain of wealth has stopped. Here we have attempted to illustrate historically, how the systems of looting surplus value were developed from the time of the East India Company to the present world order.
Four Ways to Loot a Nation
1. Drain of wealth under the East India Company
There were taxes levied by the East India Company (EIC), majorly through land revenues, taxes on independent producers etc. Taxation effectively meant a ‘free’ transfer of finished goods to the U.K. apart from collection of taxes.
2. Loot through ‘triangular trade’ with China
In 1833, the East India Company’s monopoly over Indian and Chinese trade finally ended, owing to demands from other English manufacturers. To reduce export deficit with China, Britain pumped in opium from India. This solved the problem of ‘realization of tribute’ and earned huge profits in silver. This also ensured a monopoly for Britain over the international opium market and a steady stream of silver payable to Indians in Pound Sterling.
3. Loot through Council Bills (1861)
A long-term solution to the ‘realization of tribute’ was brought in 1861 through the introduction of Council Bills by the Government through the Secretary of State Account. India, despite having a trade surplus with England from 1833 till the 1940s, would always have almost nothing in its forex reserves as a result. This meant, taken in total, India remained ‘in debt’ to the British treasury despite having a major trade surplus. (This mechanism is explained below.) For British importers, CBs ensured a favourable £ – Rupee ratio decided by the Secretary of State, while Indian producers were paid in a devalued rupee. This was how an apparent ‘exchange between equals’ in the open market ensured continued plunder.
4. ‘Expenditure abroad’ from Indian tax/revenue:
- The cost of the Red Sea and Mauritius to Cape Town telegraph lines.
- The cost of maintaining British embassies and foreign officials in a number of countries.
- The cost of importing gold in the 1890s for the reserve requirements of the gold exchange standard.
- Costs arising from Britain’s many imperial wars of conquest outside Indian borders
- The sterling cost of suppressing the Great Rebellion of 1857 in India.
- War materials worth £67 million imported from India as forced contribution.
- An additional £100 million (a very large sum, exceeding India’s entire annual budget) was transferred as a ‘gift’ from India to Britain during the First World War, followed by another £45 million ‘gift’ the next year.
- These costs, always in excess of India’s fast-rising foreign earnings, were shown as a cumulating debt that India owed. By 1901, the total Sterling debt stood at £135 million, over one-fifth of British India’s GDP and eight times its annual export surplus earnings.
This ‘drain of wealth’, as per calculations by Utsa and Prabhat Patnaik, amounts to £9.2 trillion ($45 trillion) between 1765 and 1938 (taking India’s export surplus earnings as the measure and compounding it at a 5 percent rate of interest). India was never credited the equivalent gold in its Balance of Payment account to ever overcome this historical loot. On average, the British rulers siphoned off resources equivalent to 26-36 per cent of the Central government’s budget every year.
‘Free Market’ Imperialism continues
From the colonial period, now we turn to the Indian nation-state freed from political subjugation after the end of British colonialism. Did the drain of wealth stop after 1947? The contours of imperialism shifted to allow it to continue by advancing new justifications.
The earlier imperialist system centred in Britain was replaced by one centred in the USA. We look at some aspects of this neo-imperialist plunder, particularly, the role of balance of payments, foreign exchange and labour cheapening in the next section, to see how the drain of wealth continues to this day.
Bourgeois planners in the Indian State have always argued that attracting foreign capital is necessary to release strain on our foreign exchange reserves. Fig. 1 (on the previous page) shows that the net contribution of foreign investment to India’s foreign exchange has been negative right from the decades after 1947. Clearly, foreign investors have been tolerated by the State for reasons separate from shoring up forex reserves.
1. Balance of Payments
Since liberalization and the collapse of the Bretton Woods system, the US dollar has been the global currency. The net inflow of dollars in dominated countries is always in the negative, while its net inflow into imperialist countries has always been positive.
2. Devaluation of the Rupee
Constant depreciation of the rupee has shifted balance of trade towards the US constantly after the dollar was accepted as the international benchmark currency. US gains more from every kind of trade while India loses its forex reserves with a negative balance of payment. The trend is similar with all other major economies of the world and is a long-term phenomenon. The Indian currency is becoming increasingly cheaper with respect to all major economies of the world, which means we are increasingly losing out in most foreign exchanges.
In this regard, the US has a special advantage with the dollar being the currency of international trade. The US balance of trade has been negative for the last fifty years and has been decreasing constantly. However, dominated countries like India cannot afford to have a permanent and steeply declining balance of payment like the US, as India cannot accrue profit, just by issuing currency through international trade.
3. Exploiting cheap labour
Neoliberal restructuring of the world has led to off-shoring of the manufacturing base of the world to the dominated countries because of the cheap cost of labour. In the present world scenario, where multinational corporations deploy almost the same level of technology in the dominated nations as in the imperialist nations, it is absurd to say that the productivity of a garment worker or a iPhone manufacturer is substantially lower in China, India or Bangladesh to that in Germany or US. So there can be no explanation than the transfer of a huge amount of surplus from the global South to the global North. This is why wage differentials become crucial.
Let us take the example of the companies which manufacture apparels for international brands like H&M, Haggar Clothing, GAP etc. in Delhi-NCR. They use labour at a rate $0.46 per hour (assuming ₹12,000 per month minimum wage for 12 hours of work per day and 26 paid days in a month—this is the upper limit as export demand fluctuations lead to periodic retrenchment in the garment manufacturing sector). The hourly minimum wage in the imperialist core include 12€ ($11.92) in Germany, £9.5 ($10.75) in the UK and $7.25 in the US. Multinational apparel brands sell their products without owning any physical assets in Indian or Bangladeshi sweatshops and without any legal obligations towards the garment workers. They accrue huge surplus-value just by controlling the means of distribution and by spending on marketing their brand (that is, their so-called ‘brand value’).
The discussion in this section has touched upon some aspects of contemporary imperialism. We have argued that certain types of foreign investment and export made in the name of the ‘national interest’ have been nothing but detrimental to it. Rather, these bear continuity with the type of colonial plunder and forced drain of wealth we discussed in the preceding section. The Indian State has not succeeded in breaking from such forms of plunder but it has tremendously benefited a tiny section of the Indian elite—they have no reason to change the way things are.
The question that arises then is not whether we have enough ‘development’ taking place in the developing world but about the nature of this development itself. Development on terms dictated by international finance capital is a disaster that has to be overcome by toiling people as part of the struggle to transcend capitalism – imperialism.
[This article appeared in COLLECTIVE Issue 6 (November 6). Read the full issue here (PDF).]
