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Chapter 17. The British East India Company (Indian History Notes)



The riches of Asia were comparably greater than those of European Estates in the middle of 17th century. European sailors and traders came to Asian ports right from the 15th century. But by the end of 19th century most parts of Asia and Africa came under direct or indirect control of European imperialism. As industrial nations scrambled for raw materials and new markets brought Europeans to the Eastern lands, especially in Asian countries, India being one of them. Since India has been the trading centre from ancient times, merchants and traders from Europe visited regularly. Indian rulers also gave support to them and made them profitable. The decline of the power of the Maratha and Mughals offered an opportunity to the European trading companies to become active in Indian politics. Among many European companies who came to India, the English East India company proved to be the strongest. Hawkins, the ambassador of James I, the King of England, visited the court of Jahangir is 1609 and got a firman to set up an English factory at Surat. Sir Thomas Roe, the British representative, was able to get some trade concession from Jahangir and the Mughal rulers. Prince Charles II got Bombay as his dowry when he married the Portuguese Princess Catherine of Braganza.
The British East India Company was founded in 1600 in England. Initially it was only interested in trade, and had to content itself with working around the fringes of the Mughal Empire. As the Mughals weakened, however, the company grew powerful. It had the unusual distinction of ruling an entire country. Its origins were much humbler. On 31st December 1600, a group of merchants who had incorporated themselves into the East India company were given monopoly privileges on all trade with the East Indies. The company’s ships first arrived in India, at the port of Surat, in 1608. Sir Thomas Roe reached the court of the Mughal Emperor, Jahangir, as the emissary of King James I in 1615, and gained for the British the right to establish a factory at Surat. Gradually the British eclipsed the Portugese and over the years they saw a massive expansion of their trading operation in India. Numerous trading posts were established along the east and west coasts of India, and considerable English communities developed around the three presidency towns of Calcutta, Bombay and Madras. In 1717, the company achieved its hitherto most notable success when it received a firman or royal dictate from the Mughal Emperor exempting the company from the payment of custom duties in Bengal.


Bengal or the present West Bengal in India and almost the whole of Bangladesh, was the richest province of Mughal India.
Bengal was the only bright spot where prosperity prevailed and “was the only mine of silver left in the Mughal empire”.
Murshid Quli Khan, who was appointed the Diwan of Bengal in 1700, remained at the realm of affairs till his death in 1727.
Then his son-in-law Shuja governed the province for fourteen years. While the rest of India was distracted by fratricidal wars, Maratha invasions and Jat uprising, and northern India was devastated by the invasions of Nadir Shah and Ahmad Shah Abdali, Bengal, on the whole, remained tranquil. Trade, Commerce, industries and agriculture – all prospered.
There was a huge phenomenal growth of foreign trade during this period. From 1706 to 1756, during the first half of the 18th
century, Bengal received in return for its exports nearly six and a half crore rupees worth of billion and about Rs. 2.3 crores of merchandise. Decca exported nearly thirty lakh rupees worth of cloth to Asian countries. There were a number of other commodities which were exported from Bengal. Foreign trade stimulated industry and added to the prosperity of the country.
Bengal goods were in great demand in East and West Asian countries, in Africa and in Europe. The Dutch, the English and the French had a number of settlements and factories in different parts of Bengal. Progress in trade, industry and agriculture stimulated the growth of urban centres and banking, which is illustrated by the rise of the jagat seths (world bankers).
Hughli, which was the most important port of Bengal, grew into a great centre of culture. The population of Calcutta rose high and Decca and Murshidabad became populous cities.
English settlements in Bengal
Several remarkable phases fall in the early history of the English settlements in Bengal. Between the year 1633 and 1663, the English factories in Bengal aimed at nothing more than peaceful trade under the protection of the Mughal power.
In 1690, Job Charnock laid the foundation of Calcutta as an English settlement. Seven years later a fortified factory known as Fort William was built which was made the seat of a new Presidency, officially called ‘Presidency of Fort William in Bengal’ in 1700. With the growth of population at Sutanuti, the English tried to extend the area of this settlement by buying two adjacent villages – Kalikata and Govindpur. These 3 villages formed the nucleus of the future metropolitan city of Calcutta.
The English enjoyed the greatest advantage to trade in Bengal on payment of Rs. 3000 a year in lieu of all customs and other dues. This was an imperial order issued in 1691.
Bengal was the most fertile and richest Indian province that helped the English to gain mastery over India. The English East India Company had been given the freedom to trade in Bengal without paying taxes since 1717. They also had the right to issue dastaks or passes for the movement of their goods. This had been done under a farman (order) by the Mughal Emperor. This farman always created a conflict between the English and the Nawabs of Bengal. It not only created loss of revenue to the state but was misused by the English traders. They often issued dastaks on their private trade to evade taxes.
After the death of Aurangzeb in 1707, the English, apprehending monarchy and civil war began fortification. Murshid Quli Khan, the de facto nawab of Bengal, grew jealous of the trade and prosperity of the English and thought it unjust that they should have the right to trade free or for a small consideration while his own subjects were denied this privilege. So in 1713 he annulled all the privileges of the English and ordered that they should thereafter pay the same duties as the local merchants.
Upon this the English sent an embassy under John Surman to the Mughal emperor Farrukhsiyar. As a result of this Mission, the English were able to get three farmans in their favour, in July 1717, which granted the English company privilege to trade duty-free in Bengal, in lieu of an annual payment of Rs. 3,000, to settle wherever it pleased and to rent thirty-eight villages in the vicinity of Calcutta. Murshid Quli Khan did not object to the exemption of the English trade from the customs duties, but did not permit the renting of thirty-eight villages in the neighbourhood of Calcutta. During the reign of Murshid Quli Khan, in spite of occasional interruptions, the trade of the English East India company in Bengal steadily prospered.
When Alivardi Khan came to the gaddi of Bengal, he was very conscious of the importance of foreign trade for the economic prosperity of Bengal. Therefore, he did not willfully injure the interests of the traders, whether European or Asian, but he was opposed to the attempts of the English to strengthen their fortifications in Calcutta.
English Trade Dominion
The trade arrangements which the English had made with the Mughal government were very unfavourable for the Mughals, particularly because the company’s trade was now far more prosperous than it had been in the mid-seventeenth century.
Murshid Quli Khan, wanted the English to pay customs duties but they increased their military establishments. The construction of Fort William was finished in 1716, and in 1718 the nawab asked them not to strengthen their fortifications at Calcutta. He realised the importance of external trade and encouraged foreign merchants to put all of them on an equal footing.
The customs duties remained unsettled, and in 1735 the English admitted that Nawab Shujauddin “was too absolute to regard any orders from court in their favour”. Alivardi Khan exercised some control on the English traders. His reign synchronised with the two Karnatak wars. Alivardi, as a precaution against the projection of the Anglo-French struggle into Bengal, opposed the attempts of both companies to strengthen their fortifications at their principal settlements in this province’, Calcutta and Chandannagar. Towards the close of his reign, the English began to repair and strengthen their fortification at Calcutta.
Siraj-ud-daula (1756-57)
Siraj-ud-daula was the grandson of Alivardi, who succeeded him and left free to lead a riotous life. Everyone trembled at the name of Siraj-ud-daula.
In May 1756, Siraj started for Purnea to deal with the rebellion Shaukat Jang, but he retreated from Rajmahal on receipt of news of the defiant attitude of the English at Calcutta. Calcutta was attacked and taken. Then followed an effective expedition against purnea. Shaukat Jang was defeated and killed in the Battle of Manihari. Siraj was now at the Zenith of his fortune.
He received an imperial farman confirming him in the Subahdari of Bengal, Bihar and Orissa. Siraj-ud-daula’s rupture with the English due to the crisis lay in the Company desire to improve its positive and enhance its influence in Bengal.
The renewal of the Anglo-French war in Karnatak made it necessary for the English to make a bid for a firmer foothold in Bengal which was an important source of supply for their army. The presence of the French at Chandannagar close to Calcutta called for improvement of the defences of Fort William. Siraj ordered them to stay as traders and not masters.
The French complied but the English did not. They wanted to gain control and dictate their own terms.
Capture of Calcutta
Siraj had reasonable grounds to seek a settlement of accounts with the English, under his orders the Qasim Bazar factory was invested, occupied and looted (May 1756). He personally led an attack on Calcutta, and after some resistance the city fell. Governor Drake and several other officers “disgracefully deserted” the city when its fall seemed imminent, they escaped to Fulta. Holwell, and a number of Europeans surrendered. All these prisoners were crowded in a chamber 18 feet by 14 feet 10 inches, with only one window, throughout the hot night of June.
According to Holwell, they numbered about 165 or 170, and the next morning “only about 16” came out alive, “the rest being suffocated to death”. The British historians call this event the ‘Black hole tragedy’. But Siraj was not personally responsible for the consequence of the confinement of the prisoners which was arranged by his officers.
Clive made a surprise attack to the nawabs in which the nawab’s losses far exceeded those of the English. And four days later (February 9, 1957) the Treaty of Alinagar was signed.
Calcutta was taken back by the English under Robert Clive in the beginning of 1757. The Nawab was pressurized to accept all the demands of the British. Of course these demands were not acceptable to the Nawab. This resulted in to the Battle of Plassey between the Company and the Nawab in June, 1757.
Siraj-uj-Daulah was defeated and Mir Jafar proclaimed the Nawab.
Siraj-ud-daulah was defeated and killed by the British in the Battle of Plassey in 1757. It was one of the most significant events in Indian history. This Battle paved the way for British conquest of Bengal and eventually, the whole of India. Mir Jafar, the new puppet Nawab installed by the British, granted the East India Company the right to collect revenue and also the right to free trade.
Cause of Defeat in Plassey : There were many reasons for the defeat to Siraj-ud-daulah.
• He was betrayed by his own officers and merchants such as Mir Jafar and Jagat Seth.
• The British had superior naval power.
• Siraj-ud-daulah was inexperienced and young.
• He did not make any attempt to gain support from the French.
Thus the Battle of Plassey paved the way for the British control over Bengal and ultimately helped them in controlling the entire country. The English East India Company was now not merely a trading company but also a military power. It possessed considerable landed territory which now needed a strong army to maintain and protect it.
Consequences of the Battle
• Mir Jafar became the Nawab of Bengal however the real power was in the hands of British. He paid to the company a sum of 17,700,000 rupees.
• The company got right to trade in Bengal, Bihar and Orissa without paying any tax.
• Company also received the Zamindari of 24 parganas of Bengal. It means English East India company changed from being a trading company to a political power.
• It gave British a foothold in India.
• Bengal’s rich resources were now available to the British to defeat other European powers.
• Victory raised the power of Britishers.
The Verdict of Plassey was confirmed by the English victory at Buxar (1764). During the intervening years, the “Commercial character” of the English became predominantly political because Mir Jafar was weak in character Clive’s firmness and ingenuity pushed him into helplessness, the Marathas lost for some years their military power and political ascendancy as a result of their defeat at Panipat, and the French suffered complete shipwreck in South India. In 1757 no one could have predicted the impending misfortunes of the Marathas and the French, but the establishments of British rule in Bengal could hardly have been anticipated. “It was the events of the next ten years which turned a paramount influence into a new regime.
The Battle of Buxar was significant for it led to the rise of British rule. After this victory the English Company took over all the internal affairs of Bengal. Now they had to subdue the Afghans and Marathas, before they could establish their supremacy in India.


Mir Qasim, the son-in-law of Mir Jafar, was made the new Nawab by the East India Company. Mir Jafar failed to meet the Company’s demand. The new Nawab, however, became unpopular with the British soon because of the following measures he undertook.
• Modernization of the army.
• attempt to improve the finances of Bengal.
• attempt to check the misuse of trade privileges of the British • abolition of taxes on internal trade to the dislike of the British.
Mir Qasim forged an alliance with the Mughal emperor Shah Alam-II and Nawab of Awadh Shuja-ud-Daulah. Their combined forces fought with the British forces at Buxar on October 1764. But the combined forces were defeated by the British. With this victory, the company became the real masters of Bengal.
Some major consequences of Battle of Buxar
The battle of Buxar was the result of Qasim’s alliance with Shuja and is, on that ground, linked with political fortunes of Mir Qasim, the impact of the defeat fell exclusively on Shuja.
• One single blow reduced the most important and influential ruler of North India to dust. He made desperate efforts to continue fighting but deserted by his troops.
• He became a fugitive, seeking aid and shelter from his hereditary foes the Rohilla and Bangash Afghans as also the Marathas.
• His two subhas Awadh and Allahabad came under effective English occupation.
• When all his efforts failed, he sought security in unconditional surrender to the English.
• Shah Alam had already found shelter with the English.
• Buxar was a great victory for the English in the military sense. At Plassey Siraj-ud-daula’s defeat was due to the treachery of his own generals.
• At Buxar the English emerged victorious without the aid of treachery in Shuja’s camp.
• Shuja’s ascendaney in Bengal survived the last challenge and the door was not open for the projection of its influence into the Awadh-Allahabad region.
Treaty of Allahabad (1765): Clive returned to Calcutta in May 1765 as governor of Bengal for the second time. The problem of the Company’s relations with Shuja and Shah Alam awaited solution. Although the former’s territories were under the occupation of the English army, annexation was ruled out. The assumption of administrative responsibility for the two subahs would be an experiment which had not yet been tried even in Bengal and was beyond the company’s capacity. Vansittart had promised Awadh to Shah Alam, but clive knew that he would not be able to maintain himself there without the help of English. Shuja, on the other hand was likely to provide a better security for Bengal’s western frontier. Clive made the final settlement through the Treaty of Allahabad with Shuja-ud-daula. Shuja’s old dominions were restorted to him with the exception of Kora and Allahabad which were given to Shah Alam. He was required to pay a war indemnity of Rs. 50 lakhs and to allow the compay to trade duty-free in his dominions.
Thus the Treaty of Allahabad was signed by Mughal Emperor Shah Alam II. By this treaty, Shah Alam II, granted Diwani rights of Bengal, Bihar and Orissa to the Company. Now company has to collect revenues from these provinces and to pay to the Nawab a fixed sum of rupees 53 lakh a year. Company also granted the Emperor an annual pension of rupees 26 lakh. Robert Clive established a Dual system of government in Bengal. By this system the Nawab looked after the administration of law and order, where as the company kept in its own hand the charge of collecting revenue. Though the responsibility to look after the welfare of the people lay with the Nawab, the actual power lay with the English.
Thus Robert Clive laid the foundations of the British rule in India. He was an able and an ambitious man who had a number of achievements to his credit like the capture of Arcot and Chandannagar.
The Puppet Nawabs of Bengal : After the Battle of Buxar, the English recalled their old puppet, Mir Jafar, to the throne of Bengal, who by accepting the English condition of numerically limiting the forcing of Bengal, crippled himself militarily.
The weakness of his character, accentuated by bitter political experience and a Crippling disease, made impossible to play an effective role in politics and administration. The victory of Buxar and Mir Jafar’s death a few months later completed the establishment of the company’s power in Bengal.
The Dual Government of Bengal : The treaty of Allahabad was a historical landmark in the history of Bengal because it led to an administrative transition and prepared the ground for the introduction of British system of administration in India.
It marked the end of the nawab’s authority and ushered in a system under which power was ingeniously divorced from responsibility. It was a miserable failure of the company.
When Warren Hastings was appointed governor of Bengal in 1772, he “tore the mask of Mughal sovereignty” and decided to rule Bengal by the right of conquest. Thus in less than two decades the actual power in Bengal was transferred from the nawabs of Bengal to the East India company and this richest province was reduced to acute poverty and misery, which was further followed by famines and epidemics. The capture of Bengal opened the flood gates of British colonialism and imperialism in India, reducing the rich economy of the country.


With Warren Hastings becoming the governor in 1772, Bengal came under the direct control of the company. He even stopped the annual grant of Emperor Shah Alam II. He also took away Allahabad and Kora from the Emperor and sold these territories back to the Nawab of Awadh. Awadh acted like a buffer between the British possessions and any external attack.
Anglo-Mysore wars
The First Mysore War : The first Mysore war began in 1767. The English defeated Hyder Ali and took possession of one of his fertile provinces. But by a treaty signed in 1769 all conquests made by either side were restored. English also promised to help Hyder Ali in case of attack by another power.
The Second Mysore War : The second Mysore was broke out in 1780 when Hyder Ali was attacked by the Marathas, and the English did not came to his rescue. He wanted them to vacate the part which was the only outlet for Mysore’s trade and the English refused it. Hyder Ali died in the middle of the war in 1782 and left his son Tipu Sultan to continue the struggle.
The Third Mysore War : The Third Mysore War, broke out when Tipu Sultan, invaded the tiny Kingdom of Travancore in 1789, British decided to retaliate. The Marathas and Nizam also joined this war on the side of the British. The combined forces of British compelled Tipu to sign a treaty called the treaty of Srirangpatnam. He surrendered half of his territory to the enemies and paid heavy war indemnity.
He was also forced to send two of his sons to Cornwallis as hostages to ensure his good conduct in future. At this time Lord Cornwallis was the Governor General of Bengal.
The Fourth Mysore War (1799) : At the time of the Fourth Mysore War (1799), Lord Wellesley was the Governor General of Bengal. Tipu fortified his capital and recruited fresh soldiers for his cavalry. It was of a very short duration and Tipu’s capital Srirangpatnam was captured by the British. The English took control of a large part of Mysore. The French who fought on the side of Tipu Sultan were also eliminated from India.
The British Empire got extended after the conquest of Tipu’s territory, from one end of the Deccan to the other.
The Maratha War
The Maratha wars bring to light how the English intrigned against the Marathas. After the death of the fourth Peshwa, a struggle for succession to the post of the Peshwa took place among the various clamants. Most of the Maratha chiefs including Mahadaji Sindhia fought the British under the leadership of Nana Phadnavis. The first Anglo-Maratha war (1772-1782) was followed by a peace treaty in 1782.
In 1801-02, the two Maratha chiefs Holkar and Sindhia fought between themselves as both of them wanted to control the weak Peshwa. This wars the second Maratha war that fought for four years (1801 – 1804). The British succeeded in defeating the Maratha chief namely Holkar, Sindhia and Bhosle. Peshwa Baji Rao was feeling the humiliation of signing the subsidiary alliance, raised a huge army and attacked the British residency at Poona in 1817. This was the starting of the Third Maratha War. The rulers of Nagpur and Indore also came to the help of the Peshwa. But even after that, the Marathas were defeated and large part of their territories were annexed by the British.
Anglo-Nepalese War
The Gorkhas of Nepal, were also growing in strength at that time.
Their occupation of some districts that belonged to the British provoked this attack. Thus the Anglo-Nepalese War (1814-16) became unavoidable. Nepal had to give many territories to the British. A British resident was stationed at Kathmandu. They reached upon the Himalayas. The British also fought against Burma and Burma occupied Shahpuri, a small island in the Bay of Bengal, which was under British protection. The war started and Burma was defeated and the Treaty of Yandoboo was concluded. Now Assam and neighbouring areas were bought under the control of the British.
Anglo-Sikh War
The conquest of Punjab followed that of Sindh after the death of Maharaja Ranjit Singh in 1836, the Kingdom was chaotic due to the internal struggle for power. By the treaty of Amritsar signed in 1809, the Sutluj river had been fixed as the boundary between the British and Maharaja Ranjit Singh’s territories. Thus, barely the Sikh army had crossed the river then Lord Hardinge declare war, known as the First Anglo- Sikh war (1845-46). The Sikh were defeated and Punjab was now controlled by the British. British suffered heavy losses in the Battle of Chilianwala also known as Second Anglo-Sikh war. But they were able to defeat the Sikhs. The Punjab was annexed by Lord Dalhousie on 29th March 1849. Dalip Singh was given a pension and sent to England. The Kohinoor was taken away by the British as present for their queen.
Lord Dalhousie also applied the Doctrine of Lapse. According to that, adopted sons could not be made the ruler. It means the right of an adopted son to succeed to the throne was denied.
Dalhousie annexed Satara, Jaitpur, Udaypur, Sambalpur, Nagpur, Baghbat and Jhansi. Burma and Awadh were annexed by him on the charges of maladministration. He annexed Tanjore and Karnataka by abolishing the titles and pensions of their respective rulers. The British conquest gave India its geographical unity. By the time Dalhousie left India, the boundaries of British India were touching the Hindukush on the one end and Burma on the other practically covering the entire land area from the Himalayas to Kanya Kumari. But at the same time it provided the Indians the basis to wake up as one nation to fight against the colonial rule.
Economic Impact of British Rule of India
During the 17th century India was “the largest producer of industrial goods in the world.” Her principal exports consisted of cotton and silk fabrics, spices, indigo, sugar, drugs, precious stones and diverse works of Art. Gold and silver flowed into the country and added to her wealth. India became a ‘sink of precious metals’. In world trade “ India was the respiratory organ for the circulation and distribution of moneys and commodities of the world; it was the sea wherein all the rivers of trade and industry flowed and thus enriched its inhabitants.
“Apart from the European trade, India had a flourishing trade with other countries of Asia.” India’s industries and agriculture both profited from her commercial relations with the countries of Asia – from Arabia to China and eastern coast of Africa.
Decline of India’s trade and commerce
Aurangzeb’s long wars in the Deccan and the lawlessness developing in North India due to the weakness of the imperial machinery of administration, reduced the cultivation of land as well as industrial production.
• Peace was disturbed by rebellions and wars.
• Trade suffered not only from insecurity but also from vexatious imports by local princes and petty chiefs.
• Foreign trade was seriously affected by the ruin of Indian shipping, first by the Portuguese, and later by the Dutch and English rivals in the Asiatic sea.
• India lost her old markets in South – East Asia, West Asia and Africa as a result of the dwindling of her mercantile marine power.
• During the early years of the eighteenth century, the English merchants finally came to localise their commercial interest in India.
• Farrukhsiyar’s firman of 1716, which provided for an extraordinary reduction in customs duties for the English merchants of Surat and Bengal, helped them to prevail over Dutch and Indian rivals.
In spite of these setbacks, the balance of trade was still in India’s favour and her agriculture, handicrafts and industries thrived, with England being the major beneficiary of India’s vibrant economy. During the half century preceding Plassey, the trade of the English company prospered in India despite political disturbances, war and competition from the French and the Dutch.
• In 1652, the English and in 1665, the Dutch, obtained from Shahjahan exemption from all duties from Surat to all inland centres, and from Hughli or Pipli to Agra and Delhi.
• An Act passed in 1700 prohibited the use of Asiatic silks and printed and dyed calicoes in England, though these could still be imported into England for re-exportation.
• An Act passed in 1720, generally prohibited the wear and use of calicoes not dyed or printed in England.
• In Bengal, the English put their own interpretation on Farrukhsiyar’s farman and claimed right which were not really warranted by the imperial grant. Even then they had to reckon with the competition from Indian traders and the French and the Dutch merchant and the restraints imposed by the Nawabs could not be ignored.
▪▪ After 1757 there was a large-scale English run. On Bengal’s inland trade.
▪▪ In 1765 Clive established monopoly of salt manufacture and trade through a society.
▪▪ In 1776 Warren Hastings introduced a new scheme of leasing out to individuals the privilege of manufacturing and selling salt.
▪▪ In 1758 Robert Clive secured from Mir. Jafar, the puppet Nawab of Bengal, monopoly of the Satpetre trade in Bengal for the company.
▪▪ By 1793 indigo became another important item of export, indigo planters were “British Free Traders”.
Transformation of Indian Economy into Colonial Economy
• Soon after the battles of Plassey and Buxar, when the English established their sway over the rich province of Bengal, the Indian economy was transformed from a surplus and self-sufficient economy into a colonial economy.
• There was a steady increase in both exports and imports of the company.
• The company’s servants captured the trade in commodities like salt, betelnut and tobacco which had so long been prohibited to all European traders.
• This was one of the factors which led to the break up between the English and Mir Kasim, the Nawab of Bengal.
• It is also an admitted fact that the British deliberately crippled Indian trade and manufacture by creating a high tariff wall in Britain against Indian goods and by encouraging the import of British goods into India.
• After the acquisition of political power of Bengal by the English, India’s economy was made to subserve British colonial interests. The huge drain of wealth form Bengal, the destruction of its industry, and the gradual increase in land revenue during the latter half of the eighteenth century, ruined Bengal completely.
• Dubious methods were adopted by the English to ruin trade, crafts and industries.
• Parliament passed various prohibitory and sumptuary laws for the protection of the English wearing industry. The rich textiles of Bengal, for which there was demand all over the world, were monopolised by the English.
• Bolt, a senior servant of the company, wrote in 1772 that weavers who dared to sell their goods to purchasers other than the company were “frequently seized and imprisoned, confined in irons, fined considerable sums of money and deprived, in the most ignominious manner, of what they consider most valuable, their crafts”.
• The result of such methods was the wholesale abandonment of their occupation by the weavers and the decline of the weaving industry in Bengal.
• In 1786, the Court of Directors made the first tentative efforts for sale of Lancashire cotton cloth in Bengal.
• In 1793 “the calicoes and muslins of India, even for Indian use, were supplanted in Bengal by the products of the steamlooms of Manchester”.
• In 1815 the Bengal Government reduced the import duty on British goods by 2 1/2 percent, delivering thereby a severe blow to Indian Industry.
After 1765, the land revenue demand of Bengal alone was raised by 400 percent in the thirty years.
As saltpetre was an ingredient for the manufacture of gunpowder, it was in great demand among European nations during their wars in the 18th century. The indigo planters were ‘British Free Traders’, who exploited and oppressed the poor indigo cultivators in the most inhuman manner.
Bengal’s rich sugar industry was also ruined on account of heavy duties imposed on Bengal sugar in England as compared with low duties on West Indies sugar. India’s flourishing shipbuilding industry was also ruined on account of the restrictions imposed on Indian shipping in the interests of British shipping.
England’s political power in India enabled the British manufacturer to convert this country into a vast market for their goods. The result was an ‘economic revolution’ which made India a land of poverty in the nineteenth century.
The inventions of Hargreaves, Arkwright and others during the years 1767 to 1785 helped extensive production of cotton goods in England. The unorganized Indian manufacturers, incapable of using improved scientific methods and discriminated against in respect of duties by the company’s Government, were not equal to this unfair competition.


The Battle of Plassey in 1757 laid the foundation of British colonialism in India, when the East India company established its hold over Bengal. Company strengthened its naval power in the coastal regions of India, and after the Battle of Plassey, when the rich provinces of Bengal, Bihar and Orissa came under its control, it made concrete efforts to usurp the wealth of local Nawabs, Zamindars and Chiefs. Consequently, every year the wealth and resources of India began to be drained out; and as England became richer, India grew poorer and agriculture became the only source of sustenance to the Indians. But Indians agriculture too broke down on account of the oppressive British revenue system.
The Basic tenet of colonialism is economic exploitation but the basic nature of colonialism is manifested through various means of economic exploitation.
R.P. Dutt has made a brilliant analysis of the Indian colonial economy and commented upon Karl Marx’s theory of three phases of British Colonialism and economic exploitation of India. These phases are:- I. Mercantilist Phase (1757 To 1813)
The East India Company completely monopolised trade and by manipulating low prices of Indian finished goods for exports to England and Europe, began the direct plunder of India’s wealth. During this period the surplus revenues of Bengal and other provinces were utlised for buying the finished Indian goods for export.
II. Free Trade Industrial or Capitalism (1813 to 1858)
During this phase, India was converted into a free market for the import of industrially manufactured British goods and a source of raw materials to be exported to England. The extent of exploitation can be judged by the fact that India, which had for centuries exported cotton goods to the whole world, started, by 1850, importing one-fourth of all British cotton exports. In 1833 a complete ban was imposed on all commercial activities of the company.
Thus exports from India came to be confined to raw materials and foodgrains, which caused famine conditions in India, resulting in the death of nearly 20 million people in the nineteenth century.
III. Finance Capitalism (After 1860)
After the rebellion, there was a collusion between the British and India’s conservative and reactionary elements. To meet their commercial and social needs roads and railways, post and telegraph, banking and other services were developed.
These measures helped in augmenting the investment of British capital in India. To retain control over Indian capital and industrial development, the managing agency system was also adopted. During this third phase India, in the real sense, became a colony of Britain.
As a result of the nearly two centuries long economic exploitation of India by England, the Indian economy was not only completely ruined, but the basic character of almost every aspect of Indian economy also totally altered.


Permanent or Zamindari System:
Introduced by – Cornwalis in 1793 What was it : A 10 year (decennial) settlement made with Zamindars, who were the absolute owners of lands for which the East India company gave them permanent rights to collect land revenue.
Presidency : Mainly applied to Bihar and Bengal.
Features :
• All the land belonged to Zamindars.
• Zamindars had to collect revenue from tenants and submit it to British.
• They had the full authority to decide the amount to be collected from tenants.
• There was provision for Zamindars to keep some amount of revenue with themselves.
• The amount of revenue was fixed once and for all the time to come.
• Zamindars were having three type of right over land Alienable : As per the right the Zamindari could be transfered from incapable to capable ones if they did not meet the revenue collection target.
Rentable : The Zamindari could be outsourced to comparatively smaller Zamindars.
Heritable : With the death of Zamindars it would be automatically transfered either to the siblings or to the descendants.
Consequences of Zamindari System
Political Impacts
• British got new political allies with Zamindars who would keep their own guardsmen to suppress peasant revolts.
• Sometimes they also would act as informers and remained loyal to British rule.
Economic Impacts
• Financial security of British had increased.
• Cost of running administration decreased as the British appointed few Zamindars to collect revenue from lakhs of farmers.
• Gradually the income of the government started declining as the revenue collected were fixed permanently whereas there were continuous increase in intermediaries.
Social Impacts
• Socially Zamindari system had a negative impact on the lower stratum of Indian Society.
• The farmers had nothing to do with bargaining power as such they lose it.
• Since they didn’t have any possession over land they had to opt for being tenants -at-will for zamindars.
• The Britisher shifted textile manufacturing to Britain with a plea of industrial revolution and started importing cotton from and exporting finished product to India.
This led to collapse of Desi industries and the weaver became unemployed which compelled them to migrate to village in search of work.
• Hence the begar or unpaid labour started increasing in the field of zamindars.
• As the zamindari had monopoly of controlling the revenue they started to levy more and more tax on the poor farmers and made them poorer day by day.
Ryotwari System
Introduced by – Thomas Munco and Read in Madras in 1826.
What was it : This was a direct settlement made between colonial government and the “ryots” (the peasants) Presidency : Madras, Bombay and Assam.
Features :
• All the land were claimed by Government and alloted directly to the cultivation on the basis of the amount of tax they could pay.
• Farmers gained authority over their piece of land and they were free to use it in whatever way they wanted. It might be personal use, rent, sell, bequeath, mortgage and lease.
• The farmer could be expelled from the possession of land if they were unable to pay the tax.
• The government has the authority to increase their revenue whenever they wanted • The amount of tax was revised in every thirty years.
Consequences of Ryotwari System
Political Impacts
• The intermediate layer between peasants and British, the Zamindar started to lose their importance as a result of direct agreement.
Economic Impacts :
• The Government insisted upon growing cash crops so as to earn more cash revenue. As cash crops required more growing and maintanence cost it compelled the peasants to take more loans from money lenders.
• Another instance which made the peasant farmless was the result of American Civil War which resulted into reduction of cotton export. Hence the peasants defaulted on loans and the lands were transferred to money lenders.
Social Impacts :
• The weavers became unemployed because of cottontextile industries in Britain. Hence they had to work for Zamindars at their own will so as to earn their livelihood.
• Farmers had to pay revenue even during drought and famine which became hard at times.
Mahalwari System:
Introduced by: Lord William Bentick in 1833.
What was it : Out sourcing of revenue collection work to village community. Technically the tax collector was the “head man” of the village.
Presidency : Gangetic valley, north west provinces, Parts of central India, Punjab.
Features :
• The assessment of taxation was done by individual village.
• Taxation targets were distributed among the cultivators.
• Individual farmers were responsible for their share of contribution. So everyone was liable for others arrears.
• A group of high caste elders were recommended to represent the whole village population.
• The revision of tax was on periodical basis.
Consequences of Mahalwari System
Political Impacts
• Introduction of village headman or “Lambardar” for collecting the tax from the cultivators and submission of the same to British.
Economic Impacts :
• As the system was primarily confined to Punjab and parts of Northern India the British started to extract more revenue by giving supplications of the fertile lands. Hence generally a revenue of 50% – 70% was collected of the total produced.
• With passing generation the land got divided among the descendants to the farmers. Hence there were gradual decrease in size of land holdings which in turn reduced the farm productivity.
• The transfer of lands to money lenders was more as there were increase in such farmers who continuously loosing their land due to inefficiency of repaying debts.
Social Impacts : The settlement of taxation was directly with villagers which led to form a common ownership and its maintainance known as “Bhai Chara” or “Mahali” i.e.
represented a group of villagers.


Over all the peasant community was affected to a great extent by the land tenure system levied by British.
1. Impact on Agriculture community
• Change in Agrarian life : On, one hand there was steady growth of population of peasant community due to peaceful condition among the people, but on the other hand there was gradual disappearance of economic selfsufficiency of the farmers and gradual transfer of authority within the village from the village elders to the agents of the government.
• Disintegration of Village Communities and Emergence
of Indian Middle Class : The land revenue system succeded in breaking up the age old social frame work which was an assimilation of different groups of categoried on the basis of their profession like peasants, artisans etc.
But with growing demand of changing revenue system the artisan had to sacrifice their profession as they lost the position and market of their products. Moreover they changed into wage labourers from the industrial workers.
• Agricultural Backwardness : The land revenue system compelled the peasant for paying heavy revenues to the British. As a result they were unable to save money for future use. In addition the liability of the farmer was restricted to him. The Zamindar had nothing to do with that rather than villagers or peasant gradually get poorer. Even they didn’t have the option to optimise their cultivation practice with better amenities. This resulted into the backwardness of Agriculture in India.
• Increase of Rural Indebtedness : As the peasant communities were unable to pay the revenue they had the only option of taking debt from the moneylender who in long run captured the land holdings of the poor farmer due to the lack of repayment of loan. This was a common phenomena during the Ryotwari land tenure system.
• Commercialisation of Agriculture: Previously the
agricultural productivity was confined to the “village use”
only which converted into ‘production of marketing’ as a
result of land tenure system. This enabled the “merchant”
or the middle man class of society to take undue advantages
from the peasants as they had a monopoly over the market
owing to their supremacy in economic position.
2. Growth of Poverty
• During 1854 – 1901, 24 famines hit India, in which about 29 million people perished.
• In 1943, famine of Bengal claimed three million lives.
• There were other factors which also contributed to the growth of poverty among the agriculturists. On addition to such economic earthquakes as the periodically occurring agarian crisis, there were also non-social causes such as drought, or devastating rains which brought economic misery to the agriculturists.
• A large proportion of Indian peasant population got into debt due to their inability to pay land revenue as a result of bad monsoons.
• Famines also hit the land. These famines revealed that poverty, chronic starvation, low life expectancy, and infant mortality had taken firm roots in India.
• The worst feature of the Indian famines was that largescale deaths occurred not because of drought, floods, crop failures, and non-availability of food grains in the country but mainly due to starvation owing to the poor purchasing power of the people.
• The cumulative effect of all the factors enumerated above explains the growth of the phenomenal poverty of the agricultural population.
• Unable to pay his debt or even the interest on it, the agriculturist not only lost his crops to the money lender but rapidly lost his land to him.
3. Decline of Village Industries
• During 1757 – 1857, the East India Company Expanded its control over more and more territories in India.
• In 1813, the industrial classes had become politically powerful in England.
• The 1813 Charter destroyed the monopoly of trade of the East India company.
• The Act of 1793, in Bengal, had a very disastrous effect on the life of the craftsmen.
• The village industries were an integral part of the balanced and self-sufficient village economy of pre-British India.
• The famines also contributed to the decline of village artisan industries. During the period of famine, poor artisans, specially weavers, were constrained to seek relief by taking to other forms of work.
• Another aspect of the change in the status of the artisan was that he was increasingly transformed into a wage worker.
• Many of the village artisans deserted their traditional occupations and migrated to urban areas.
• These artisans became either wage – earners in towns and cities or turned into landless labourers on petty wages.
4. Ruin of Indian Handicrafts
While the village industries declined slowly, the town handicrafts in India had a “sudden and complete collapse” under the British rule. Karl Marx has rightly said “The British intruder broke up the Indian handloom and destroyed the spinning loom, and inundated the very mother country of cotton with cottons”. The rule of the East India Company proved disastrous to the handicraft industry in India for a number of reasons. The first was that it destroyed the native states, which were the greatest customers and patrons of this industry. Secondly, the East India Company, which was the successor of these states, could have given impetus to the industries, but, being a foreign company under the control and direction of foreign power, it adopted measures under the pressure of British Government, which proved detrimental to the manufacturing interests of India. Thirdly, being a trading company it wanted to produce things cheaply and sell them profitably in other markets. B. D. Basu has enumerated the following principal measures taken by the British to bring about the collapse of Indian handicrafts.
From the time England acquired political power in India, she destroyed Indian industries principally by means of:
1. The forcing of British free trade on India; 2. imposing heavy duties on Indian manufacturers in England.
3. the export of raw products from India; 4. the transit and customs duties; 5. granting special privileges to the British in India; 6. building railways in India; 7. compelling Indian artisans to divulge their trade secrets; and 8. holding of exhibitions.
Another factor which affected the handicrafts in India was the attitude of the new wealthy classes which evolved on the basis of the establishment of British rule in India.
5. De-Industrialisation
The colonial masters of India deliberately deprived India of the fruits of the Industrial revolution and strove to keep India predominantly agrarian, so that they could secure cheap agricultural raw materials from India for British industries and find ready markets in India for industrially produced goods of Britain. In England and other European countries there were indian modern industries which vanquished and crushed Indian handicrafts.
Ruin of handicrafts and industries and industrialisation led to acute poverty and unemployment. Therefore, by the end of the 19th century, the demand for rapid indstrialsation along modern lines had assumed national proportions.
6. Growth of foreign capital and the rise of
modern industries in India
• In 1850, cotton textiles, jute, and coal mining industries were started in India.
• Before 1914 nearly 97% of British capital investment in India was diverted towards completion of govt. projects, plantation industry and development of financial houses.
• The coming of railways heralded the entry of modern machines in India and during the 1850’s Cotton textiles, jute, and coal mining industries were started in India.
• Thus establishment of modern industries began in India during the second half of the nineteenth century, but its growth was slow and stunted and under the control of foreign capital.
• Thus the predominant control of British finance capital retarded the tempo of free industrial growth and general, economic development in India.
7. Growth of Unemployment
• In India, labour was released from traditional industries but there was no growth of modern industries or extension of agriculture to absorb that labour. Briefly, the economic development of the country became “an appendage of a foreign exploitative system”.
• Industry and trade were in foreign hand leading to a drain of the country’s wealth; and its vast resources were monopolised and brutally exploited by the colonial masters.
8. Change in the Structure of India’s Trade
• The expansion of British trade in India not only proved ruinous to Indian trade and industry, but also radically changed the structure of India’s trade. Competition with imported goods destroyed the Indian industry, deprived the artisans of their income and narrowed down the avenues of employment for labour.
• Thus, the change in the structure of Indian trade became an instrument of exploitation of India’s resources and her economic enslavement. Owing to this change, there was such a heavy reduction in the prices of Indian products in the world market that the terms trade turned heavily against India.
9. Drain of Wealth
• The father of Indian Nationalism, Dadabhai Naoroji has explained the “Drain of Wealth” theory in his book Proverty and Unbritish Rule in India’ As per the theory, part of India’s national wealth was being drained away to England without being consumed by Indians and having no economic or material return. This nature of the drain of wealth was continuous, which included home charges, expenditure by secretary of state and Indian office in London, dividends of share holders of East India Company, interest on public debt, war and military expenditure and store purchases in England, interest on foreign capital investments, foreign banking, shipping, insurance and managing agency.

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