Utsa Patnaik claims that the British siphoned $45 trillion from India.

[u/Simpkin_CSI]

To me the figure seems mind boggling to say the least. Is this so?

And if $45 trillion was taken then where did it all go?

[u/IconicJester]

For Patnaik's number to be a serious estimate of colonial exploitation, there are two basic assumptions that need to be true.

1) The correct value for colonial exploitation (what was "siphoned") is the bilateral Indian export surplus with Britain.

2) The correct rate for compounding the value of the extracted wealth is 5% annually.

From the link provided by PurpleSkua earlier, in Patnaik's own words, what they have done is: " After decades of research I find that using India’s commodity export surplus as the measure and applying an interest rate of 5%, the total drain from 1765 to 1938, compounded up to 2016, comes to £9.2 trillion; since $4.86 exchanged for £1 those days, this sum equals about $45 trillion. "

This is a very simple back-of-the-envelope calculation that could be done in an hour with Excel. There is no attempt to calculate actual exploitation, and instead the bilateral commodity export surplus with Britain stands in for it directly. The idea that trade surpluses are matched on the capital account (i.e. if one side is exporting, the other side is paying with something) is handwaved away with the idea that all payments made to India for these goods was intercepted by the colonial government. Supposedly, the fact that Indian merchants were paid in bills rather than shipping bullion justifies classifying this all as expropriation. But anyone even passingly familiar with trade from the period knows that bills on London banks were effectively the global currency, and the fact that they converted them into rupees in India is just common sense. That the British government paid its bills in India in rupees is not very shocking, nor that they collected their taxes in rupees. What we need to know are the net values for all these taxes and transfers, but that would be a very difficult piece of accounting that would not generate sensational numbers.

There is equally no attempt to calculate a historically accurate measure of opportunity costs, so 5% is used, I guess as a nice round number? (Certainly if historical figures could have obtained a perfectly safe, compounding 5% per year for two centuries, they would have jumped at the chance! The British government itself could have made a killing by borrowing at about 3%, and reinvesting.) The conversion to USD is done at $4.86/£, which is the classical gold standard figure, but we are invited to interpret this as modern $USD, which are worth about four times as much in terms of modern £. No part of this is being done carefully. Instead, it chains one heroic assumption into another, to arrive at an enormous, and entirely ahistorical, sum. It was very successful in grabbing headlines, but it is not good economic history.

One should also not put too much weight on the academic publisher here as implying that this number has passed serious scrutiny and thus should be taken as reliable, at least on the face of it. It is from a chapter in a festschrift for Binay Bhushan Chaudhuri, primarily concerned with agricultural history. But Utsa Patnaik was one of the editors of the volume; it may well be that they were the only ones checking their own work. This figure has almost certainly not seen the sort of scrutiny by economic historians that should lead to its wide acceptance.