Dadabhai Naoroji was the first man to say that internal factors were not the reasons of poverty in India but poverty was caused by the colonial rule that was draining the wealth and prosperity of India.

In 1867, Dadabhai Naoroji put forward the ‘drain of wealth’ theory in which he stated that the Britain was completely draining India. He mentioned this theory in his book Poverty and Un-British Rule in India. Further in his book, he stated the loss of 200-300 million pounds of revenue to Britain. Dadabhai Naoroji considered it as a major evil of British in India.

On the footsteps of Dadabhai Naoroji, R. C. Dutt also promoted the same theory by keeping it as a major theme of his book Economic History in India. The drain of wealth was the portion of India’s wealth and economy that was not available to Indians for consumption.

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

  1. External rule and administration in India.

2. Funds and labour needed for economic development was brought in by immigrants but India did not draw immigrants.

3. All the civil administration and army expenses of Britain were paid by India.

4. India was bearing the burden of territory building both inside and outside India.

5. India was further exploited by opening the country to free trade.

6. 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.

Dadabhai Naoroji was a greater supporter of free education especially to women and children in India as his mother had to struggle a lot to provide the same to him. He was very keen in providing education and making it free.

He also wanted to uplift the condition of women in India. For this, he laid the foundation of Jyan Prasarak Mandal, the only girls’ high school in Bombay.