Drain of Wealth theory refers to a portion of national product of India which was not available for consumption to its people.
Constituents of drain were:
(i)
Extortion by company servants the fortunes from
rulers, zamindars, merchants and common man and sending them home.
(ii)
Purchasing
goods out of revenues of Bengal and exporting them. This was called investment.
(iii)
Duty free trade provided to the British gave
them a competitive edge over Indian traders. These subsidies were financed from
Indian treasury.
(iv)
Remittances or salaries and other incomes by company
officials send to England.
(v)
Home charges or cost of salaries and pensions of
company officials in India were paid from the treasury of India.
(vi)
Hefty interests were paid to British investors.
Effects
(i)
It stunted the growth of Indian enterprise
and checked and retarded capital formation in India.
(ii)
It financed capitalist development in
Britain.
(iii)
India was kept as a zone of free trade
without allowing it to develop the ability to compete.
(iv)
Plantations, mines, jute mills, banking ,
shipping , export-import concerns promoted a system of interlocking capitalist
firms managed by foreigners. It drained
resources from India.