The economy of India under Company rule involves the economy of those regions that fell under the rule of the British East India Company between the years 1757 and 1858. The British East India Company (EIC) began ruling parts of the Indian subcontinent beginning with the 1757 Battle of Plassey, which led to the conquest of Bengal Subah and the expansion of the Bengal Presidency (founded in 1699), before the Company extended its influence or rule across most of the subcontinent up until the Indian Rebellion of 1857. The EIC also acquired bases in places like Singapore and China.
Economic impact
A number of historians point to the colonization of India as a major factor in both India's deindustrialization and Britain's Industrial Revolution. The capital amassed from Bengal following its 1757 conquest helped to invest in British industries such as textile manufacture during the Industrial Revolution as well as increase British wealth, while contributing to deindustrialization in Bengal. British colonization forced open the large Indian market to British goods, which could be sold in India without any tariffs or duties, compared to local Indian producers who were heavily taxed, while in Britain protectionist policies such as bans and high tariffs were implemented to restrict Indian textiles from being sold there, whereas raw cotton was imported from India without tariffs to British factories which manufactured textiles from Indian cotton and sold them back to the Indian market. British economic policies gave them a monopoly over India's large market and cotton resources. India served as both a significant supplier of raw goods to British manufacturers and a large captive market for British manufactured goods.
Indian textiles had maintained a competitive advantage over British textiles up until the 19th century, when Britain eventually overtook India as the world's largest cotton textile manufacturer. In 1811, Bengal was still a major exporter of cotton cloth to the Americas and the Indian Ocean. However, Bengali exports declined over the course of the early 19th century, as British exports to Bengal increased, from 25% in 1811 to 93% in 1840. India, which was previously the world's largest economy under the Mughal Empire in 1700, had by 1820 fallen to become the second largest economy, behind Qing China.
Land revenue In the remnant of the Mughal revenue system existing in pre-1765 Bengal, zamindars, or "land holders," collected revenue on behalf of the Mughal emperor, whose representative, or diwan supervised their activities. In this system, the assortment of rights associated with land were not possessed by a "land owner," but rather shared by the several parties with stake in the land, including the peasant cultivator, the zamindar, and the state. The zamindar served as an intermediary who procured economic rent from the cultivator, and after withholding a percentage for his own expenses, made available the rest, as revenue to the state. Under the Mughal system, the land itself belonged to the state and not to the zamindar, who could transfer only his right to collect rent. On being awarded the diwani or overlordship of Bengal following the Battle of Buxar in 1764, the East India Company found itself short of trained administrators, especially those familiar with local custom and law; tax collection was consequently left in the hands of the existing hereditary collectors. This uncertain foray into land taxation by the Company, may have gravely worsened the impact of a famine that struck Bengal in 1769–70 in which between seven and ten million people—or between a quarter and third of the presidency's population—may have died., However, the company provided little relief either through reduced taxation or by relief efforts, and the economic and cultural impact of the famine was felt decades later, even becoming, a century later, the subject of Bankim Chandra Chatterjee's novel Anandamath.
In 1772, under Warren Hastings, the East India Company took over revenue collection directly in the Bengal Presidency (then Bengal and Bihar), establishing a Board of Revenue with offices in Calcutta and Patna, and moving the existing Mughal revenue records from Murshidabad to Calcutta. In 1773, after Oudh ceded the tributary state of Benaras, the revenue collection system was extended to the territory with a Company Resident in charge. The following year—with a view to preventing corruption—Company district collectors, who were then responsible for revenue collection for an entire district, were replaced with provincial councils at Patna, Murshidabad and Calcutta and with Indian collectors working within each district. The title, "collector," reflected "the centrality of land revenue collection to government in India: it was the government's primary function and it moulded the institutions and patterns of administration."
The Company inherited a revenue collection system from the Mughals in which the heaviest proportion of the tax burden fell on the cultivators, with one-third of the production reserved for imperial entitlement; this pre-colonial system became the Company revenue policy's baseline. There was vast variation across India in the methods by which the revenues were collected; with this complication in mind, a Committee of Circuit toured the districts of expanded Bengal presidency in order to make a five-year settlement, consisting of five-yearly inspections and temporary tax farming., In their overall approach to revenue policy, Company officials were guided by two goals: preserving as much as possible the balance of rights and obligations that were traditionally claimed by the farmers who cultivated the land and the various intermediaries who collected tax on the state's behalf and who reserved a cut for themselves and identifying those sectors of the rural economy that would maximize both revenue and security. Although their first revenue settlement turned out to be essentially the same as the more informal previous Mughal one, the Company had created a foundation for the growth of both information and bureaucracy.
In 1793, the new Governor-General, Lord Cornwallis, promulgated the permanent settlement of land revenues in the presidency, the first socio-economic regulation in colonial India. It was named permanent because it fixed the land tax in perpetuity in return for landed property rights for zamindars; it simultaneously defined the nature of land ownership in the presidency and gave individuals and families separate property rights in occupied land. Since the revenue was fixed in perpetuity, it was fixed at a high level, which in Bengal amounted to £3 million at 1789–90 prices. According to one estimate, this was 20% higher than the revenue demand before 1757. Over the next century, partly as a result of land surveys, court rulings and property sales, the change was given practical dimension. An influence on the development of this revenue policy were economic theories which regarded agriculture as the engine of economic development and consequently stressed the fixing of revenue demands in order to encourage growth. The expectation behind the permanent settlement was that knowledge of a fixed government demand would encourage the zamindars to increase both their average outcrop and the land under cultivation, since they would be able to retain the profits from the increased output; in addition, it was envisaged that land would become a marketable form of property that could be purchased, sold or mortgaged. A feature of this economic rationale was the additional expectation that the zamindars, recognizing their own best interest, would not make unreasonable demands on the peasantry.
However, these expectations were not realised in practice and in many regions of Bengal, the peasants bore the brunt of the increased demand, there being little protection for their traditional rights in the new legislation. Forced labor of the peasants by the zamindars became more prevalent as cash crops were cultivated to meet the Company revenue demands. Although commercialized cultivation was not new to the region, it had now penetrated deeper into village society and made it more vulnerable to market forces. The zamindars themselves were often unable to meet the increased demands that the Company had placed on them; consequently, many defaulted, and by one estimate, up to one-third of their lands were auctioned during the first three decades following the permanent settlement. The new owners were often Brahmin and Kayastha employees of the Company who had a good grasp of the new system, and in many cases, had prospered under it.
Since the zamindars were never able to undertake costly improvements to the land envisaged under the Permanent Settlement, some of which required the removal of the existing farmers, they soon became rentiers who lived off the rent from their tenant farmers. In many areas, especially northern Bengal, they had to increasingly share the revenue with intermediate tenure holders, called Jotedar, who supervised farming in the villages. Consequently, unlike the contemporaneous Enclosure movement in Britain, agriculture in Bengal remained the province of the subsistence farming of innumerable small paddy fields.
The zamindari system was one of two principal revenue settlements undertaken by the Company in India. In southern India, Thomas Munro, who would later become Governor of Madras, promoted the ryotwari system, in which the government settled land-revenue directly with the peasant farmers, or ryots. This was, in part, a consequence of the turmoil of the Anglo-Mysore Wars, which had prevented the emergence of a class of large landowners; in addition, Munro and others felt that ryotwari was closer to traditional practice in the region and ideologically more progressive, allowing the benefits of Company rule to reach the lowest levels of rural society. At the heart of the ryotwari system was a particular theory of economic rent—and based on David Ricardo's Law of Rent—promoted by utilitarian James Mill who formulated the Indian revenue policy between 1819 and 1830. "He believed that the government was the ultimate lord of the soil and should not renounce its right to 'rent', i.e. the profit left over on richer soil when wages and other working expenses had been settled." Another keystone of the new system of temporary settlements was the classification of agricultural fields according to soil type and produce, with average rent rates fixed for the period of the settlement. According to Mill, taxation of land rent would promote efficient agriculture and simultaneously prevent the emergence of a "parasitic landlord class." Mill advocated ryotwari settlements which consisted of government measurement and assessment of each plot (valid for 20 or 30 years) and subsequent taxation which was dependent on the fertility of the soil. The taxed amount was nine-tenths of the "rent" in the early 19th century and gradually fell afterwards. However, in spite of the appeal of the ryotwari system's abstract principles, class hierarchies in southern Indian villages had not entirely disappeared—for example village headmen continued to hold sway—and peasant cultivators sometimes came to experience revenue demands they could not meet., In the 1850s, a scandal erupted when it was discovered that some Indian revenue agents of the Company were using torture to meet the Company's revenue demands.