The transfer of resources and wealth from India to England without providing ‘any equivalent return’ which began in the second half of the eighteenth century had been christened by Indian ‘non-practicing’ economists like Dadabhai Naoroji, M. G. Ranade, R. C. Dutt as the “economic drain”.

It was in 1867that for the first time Dadabhai Naoroji in his paper 'England's Debt to India' put forward the idea that Britain was extracting wealth from India as a price of her rule in India, that out of the revenues raised in India, nearly one-fourth went clean out of the country and was added to the resources of England', and that India was consequently 'being bled'. Dadabhai Naoroji dedicated his life to propagation of the drain theory and to launching a roaring campaign against the drain which was considered by him to be the fundamental evil of British rule in India.\\

Dadabhai Naoroji gave six factors that caused external drain. These are:

• External rule and administration in India.
• Funds and labour needed for economic development was brought in by immigrants but India did not draw immigrants.
• All the civil administration and army expenses of Britain were paid by India.
• India was bearing the burden of territory building both inside and outside India.
• India was further exploited by opening the country to free trade.
• Major earners in India during British rule were foreigners. The money they earned was never invested in India to buy anything. Moreover they left India with that money.
• Not only this but through different services such as railways ,India was giving a huge amount to Britain .On the other hand ,trade as well as Indian labour was deeply undervalued .Along with this ,The East India Company was buying products from India with Indian money and exporting it to Britain.

Effects of the Drain on India:

• Huge drain of resources from India into England had resulted disastrous effects on Indian economy and its people. Huge amount of these resources which could be invested in India were snatched and siphoned off to England.
• Huge public debt undertaken by the Government and its payment of interest necessitated increasing tax burden on the people of India, which were highly regressive in nature. As per Dadabhai Naoroji’s estimates, tax burden in India during 1886 was 14.3 per cent of its total income which was very high as compared to 6.93 per cent in England.
• Moreover, these tax proceeds were mostly used for making payments to British creditors and not for the social services and welfare activities of Indians. This type of drain of tax proceeds from India impoverished the agriculture, industry and trading activities in India and was largely responsible for stagnant stage of its economy during the 18th and 19th centuries.
• Although the British undertook responsibility of maintaining law and order, centralised political and judicial administration, roads, railways, educational set up etc. but the extent of draining out of resources was too excessive leading to stagnation of the economy and poor and miserable condition of Indian masses.
• The drain theory had far reaching impact on the growth of the economic nationalism in India. Banking on this theory the early nationalists attributed the all- encompassing poverty not as a visitation from God or nature. It was seen as man-made, and therefore capable of being explained and removed.
• In course of their search for the causes of India’s poverty, the nationalists underlined factors and forces which had been brought into play by colonial rulers and the colonial structure. The problem of poverty was seen as the problem of increasing the productive capacity and energy of the people. This approach made poverty a broad national issue and helped to unite, instead of divide different regions and sections of Indian society.

Based on this firm foundation, the later nationalists went on to stage powerful mass agitations and mass movements. The drain theory thus laid the seeds for subsequent nationalism to flower and mature.