Administration before 1857 and Economic Policies


Establishment of EIC

• The East lndia Company began as a trading corporation. Its early organisation was suitable to that of a purely trade organisation.
• Each Chief “factory” or trading establishment was under the control of a President, later called Governor, and a Council, consisting of the senior servants of the company in the factory.
• New and less important factories were put under the charge of a senior merchant or “factor”.
• The Commercial factories which had a President as head came to be called Presidencies, such as those of Madras, Bombay and Calcutta.
• The jurisdiction and control of the company grew by different processes, namely the acquisition of Zamindari rights, conquest or cession of territory and assumption of the Diwani.
• In 1698 the company bought the Zamindari rights of the villages of Sutanati, Calcutta and Govindpur.
• In 1757 the company acquired rights in the twenty-four parganas on the basis of a quit rent which was subsequently assigned to the company.
• In 1760 Mir Qasim ceded to the company the district of Burdwan, Chittagong and Midnapur and this was confirmed by the Mughal Emperor Shah Alam.
• Over Englishmen the company relied upon its Chartered Rights while over Indians the authority of the Company was that of a Zamindar under a local fauzdar.
• After the battle of Buxar in 1764 the British became the supreme power in Bengal.
• When the British took control of Bengal, they tried to establish administration according to their requirements.
• Before 1765 the Nawab of Bengal was looking after the administration. Theoretically he was working as an agent of the Mughal Emperor, but in practice he had absolute authority.
• As Nawab he was incharge of law and order, military power and criminal justice and as Diwan he was responsible for the revenue collection and administration of civil justice.
• In 1764 after the Battle of Buxar the British became supreme power in Bengal. Open annexation would have created political complication both for the company in India and the home government.
• The company therefore procured an order from the Mughal emperor granting them the diwani (rights to collect land revenue) for Bengal, Bihar and Orissa.
• Even in the exercise of its powers as diwan, the actual collection of revenue initially remained in the hands of the Nawab’s deputies. The nizamat remained in the hands of the Nawab.
• The dual nature of administration came to an end in 1772, when the company decided to take actual control of revenue collection.
• The company had now grown from a predominantly commercial into a predominantly territorial power.
• With the expansion of political power of the company misuse of power by its officials also increased and the acquisition of political power by the company was questioned in England and there was pressure on parliament to intervene.
• Continuous wars and mis-management by the company officials landed it in deep financial crisis.
• The company requested parliament for financial help. The parliament agreed on the – condition that it will regulate the administration of company in England and India.
• For this purpose the Regulating Act of 1773 was passed.

The Charter Acts

• The Charter Acts were passed by the British Parliament to govern the activities of the East India Company, endowed it with enormous Commercial privileges and granted them the powers to rule India up to 1858.
• The Charter Acts issued enabled the East India Company, commercial privileges in several series, for twenty years each.
• The first Charter Act was granted in 1793, granting the company provision of 20 years.
• Later the Charter Act was renewed in the year 1813, 1833 and 1853 respectively.

Regulating Act of 1773

• The Regulating Act of 1773 might be regarded as the first serious attempt by the British Parliament to regulate Indian affairs. It constituted for the first time:
– A supreme government, headed by a Governor General of Fort William in Bengal and four Councillors, having the supervisory authority over the presidencies of Bombay and Madras.
– The presidencies were forbidden to make war or peace with Indian states without the consent of Governor General and Council, except in cases of imminent necessity and also in the cases where they had received direct orders from the court of Directors.
– Provision for the establishment of a Supreme Court at Calcutta.
– The Act recognized the right of Parliament to regulate the civil, military and revenue affairs of the company’s territories in India and registers the first concern in the intervention of the Indian affairs.
• The Act suffered from certain fundamental defects which contributed to the difficulties of Warren Hastings who was opposed by his councillors.
• The Act was also vague about the jurisdiction control over subordinate presidencies and the jurisdiction between the Supreme Council and the Supreme Court.
• As a consequence of the defects of the Act, Warren Hastings found himself unable to carry out his administrative responsibilities and one crisis often developed after another in the council.

Pitt India Act 1784

• On assumption of office of the Prime Minister, William Pitt introduced an India Bill and it was passed into a law in August 1784. According to this Act:
– Distinction between territories and commerce was to be maintained.
– Territorial administration was to be placed under a representative body of Parliament while the Company was to continue to control commerce.
– The government in India however, would still be run in the name of the company but political and revenue matters would be subject to the control and supervision of the proposed parliamentary body.
• Pitt’s India Act established an effective instrument of control, direction and supervision which worked with slight alterations till 1858, and the control of the Crown was now complete over India.


• In the first half of the nineteenth century the character of legislation for the administration of British territories was to some extent influenced by Utilitarian thought and principles.

Charter Act of 1813

• The renewal of the Charter in 1813 was marked by expression of liberal principles. The Charter Act of 1813 renewed the charter issued to the British East India Company, and continued the Company’s rule in India.
• However, the Company’s commercial monopoly was ended, except for the tea trade and the trade with China.
• According to Charter Act of 1813:
– Administration of the company was left in its hands but the monopoly of the Company’s Indian trade was abolished.
– The Act expressly asserted the Crown’s sovereignty over British India.
– It allotted Rs 100,000 to promote education in Indian masses.
– This act permitted Christian missionaries to propagate English and preach their religion.
– The power of the provincial governments and courts in India over European British subjects was also strengthened by the Act.
– Financial provision was also made to encourage a revival in Indian literature and for the promotion of science

Charter Act of 1833

• By the Act of 1833, the Company surrendered all its personal property in India and held it in trust for the crown.
• The company disappeared as a commercial agency in India, remaining as a political agent for the crown.
• Now the government of India was reconstituted on a new model which gave it in all India character. It contained the following provisions:
– It re-designated the Governor-General of Bengal as the Governor-General of India. Under this provision Lord William Bentinck became the first Governor-General of India.
– It deprived the Governors of Bombay and Madras of their legislative powers.
– The Governor-General was given exclusive legislative powers for the whole of British India.
– It ended the activities of the British East India Company as a commercial body and became a purely administrative body.
– In particular, the Company lost its monopoly on trade with China and other parts of the Far East.
– It attempted to introduce a system of open competitions for the selection of civil servants. However this provision was negated after opposition from the Court of Directors who continued to hold the privilege of appointing Company officials.

Judicial System

• The early Charters of the Company gave it authority to make reasonable laws, ‘constitutional orders’ and ‘ordinances’ and within limits to punish offences committed by its servants, but they gave no territorial powers of jurisdiction.
• In 1661 Charles II authorised the Governor and Council of each factory to exercise criminal and civil jurisdiction, not only over the Company’s servants, but over all persons under the said Governor or Company.
• After the assumption of Diwani the Company to some extent, became responsible for civil justice.
• In criminal matters Muhammadan law was followed, but in civil cases the personal law of the parties was applied.
• In civil suits appeals lay to the Sadar Diwani Adalat which in effect meant the President and members of Council while criminal appeals lay with Sadar Nizamat Adalat which was under the Nawab.
• However, the first concrete step in organizing judicial administration was taken up by Warren Hastings. He for the first time made the district as a unit of judicial administration.
– In each district civil and criminal courts were established.
– In each district collectors were to preside civil courts, and in criminal courts an Indian officer worked with the help of two maulvis.
– Over the district courts were created the courts of appeal at Calcutta.
– The Sadar Diwan Adalat consisted of the Governor and two members of the council assisted by the Diwan of the exchequer, the head Qanungo etc.
– Sadar Nizamat Adalat was presided over by the Nazim’s deputy, a muslim officer, who was assisted by Maulvis.
• In 1773 the Regulating Act set up the Supreme Court in Bengal which derived its power from the Crown.
• The establishment of the Supreme Court led to the emergence of two rival sets of judicial authorities: The Supreme Court, and Sadar Diwani Adalat.
• A temporary solution was found with the appointment of the Chief Justice of the Supreme Court as President of the Sadar Diwani Adalat.
• In 1790 criminal appeals were transferred to the Governor-General and Council who was assisted by Chief Qazi and two muftis. This was part of the general policy of Cornwallis in replacing Indians by Europeans in all higher posts.
• Cornwallis established District courts under British judges.
• He separated the posts of civil judge and the collector from whom appeals lay to four new appellate courts set up at Calcutta, Dacca, Murshidabad and Patna.
• Below the district courts were Registrar’s courts, headed by Europeans and a number of subordinate courts headed by Indian judges known as Munsifs and Amins.
• In 1801 the judicial authority of the Governor General Council came to an end and three judges were appointed to form the Sadar Diwani Adalat or Civil Appellate Court.
• The principle of duality between the courts of the Crown and the Zamindari Courts ended in 1861 when the Indian High Court Act established High Courts at Calcutta, Madras and Bombay in place of the Supreme Court as well as the Sadar Court.
• The important features of the new judicial set up were the rule of law, equality before law, recognition of the right to be judged by his personal law and the growth of the professional and trained judicial hierarchy.
• However, the new judicial system suffered from certain serious weaknesses. In criminal cases the Europeans had separate courts and even laws. They were tried by European judges who at times gave them undue protection.
• In civil matters the situation was quite serious. The courts were situated at distant places. The procedures were long and time consuming. Getting justice was very expensive. Village committees and Panchayats lost importance even in the village matters.

Impact of British Administration

• The benefits of British Administration could be seen in the maintenance of peace and order, belief in liberty and ushering in a process of modernization.
• A common system of law and uniform court of government produced a large measure of unity.
• However, the remote and impersonal nature of administration proved to be both a source of weakness and strength. Its defect was that it produced a lack of sensitiveness to the feelings of the people.
• The British administrative policies resulted in the disappearance of indigenous institutions of local self government and exclusion of Indians from higher ranks of administration.
• The effects of subordination of Indian economy to British interests were many, such as the ruin of artisans and craftsmen, impoverishment of the peasantry, ruin of old zamindars and rise of a class of new landlords, stagnation and deterioration of agriculture.
• The general discontent which began to brew up among the Indians as a consequence of British policies, ultimately led to the outbreak of 1857.

• The economic policies followed by the British led to the rapid transformation of India’s economy into a colonial economy.
• The structure and nature of India’s economy were determined by the needs of the British economy.
• The previous conquerors had made no basic changes in the country’s economic structure.
• The peasant, the artisan, and the trader had continued to lead the same type of existence as before. The basic economic pattern (the self-sufficient rural economy) had been perpetuated.
• Change of rulers had merely meant change in the personnel who appropriated the peasant’s surplus.
• But the British conquerors were entirely different. They totally disrupted the traditional structure of the Indian economy. Moreover, they never became an integral part of Indian life and always remained foreigners in the land, exploiting Indian resources and carrying away India’s wealth.
• The economic policy of the British government led to a rapid transformation of India’s economy into a colonial economy, whose nature and structure were determined by British needs.
• From 1600-1757 the East India Company’s role was of a trading corporation which brought goods or precious metals into India and exchanged them for Indian goods like textiles.
• After the Battle of Plassey the Company’s commercial relations underwent a qualitative change and now the company used its political control to push its Indian trade.
After 1757 colonial exploitation was carried on broadly through three phases:
Phase of Mercantilism (1757-1813) – Surplus Indian revenues were used to buy Indian finished goods to be exported to England.
Phase of Free Trade (1813-1858) – India was converted into a source of raw material and a market for British manufactured goods.
Phase of Finance Imperialism (1858 onwards) – British capital controlled banks, foreign trading firms and managing agencies in India.

Phase of Mercantilism (1757-1813)

• After the Battle of Plassey, the East India Company completely monopolised trade and began the direct plunder of Indian wealth.
• Twin aims of the merchant companies were:
– To have a favourable balance of trade; and
– To promote flow of bullion into the home country.
• The Merchant Companies aimed at large profit margin and it was made possible through monopoly control over trade and elimination of all possible rivals and purchase of goods at cheap rates and sale of commodities at very high rates.
• The Company used its political power to dictate terms to weavers of Bengal who forced to sell their products at a cheap and dictated price. Many of them were compelled by the Company to work for them and were forbidden to work for Indian merchants.
• The servants of the Company monopolised the sale of raw cotton and made the Bengal weaver pay exorbitant prices for it.

Phase of Free Trade (1813-1858)

• In a bid to acquire greater control over the Company’s earnings, the Parliament started attacking individual Company officials with charges of ‘misconduct’.
• The ‘Free Traders’, dominant in the Parliament demanded free access to India, which led to the passing of the Charter Act of 1813, thus ending the monopoly enjoyed by the Company in India, while subordinating its territorial possessions to the overall sovereignty of the British crown.
• ‘Free Trade’ changed the nature of the Indian colony completely, through following strategy:
– Firstly it threw open Indian markets for the entry of cheap, mass-produced, machine-made British goods, which enjoyed little or almost no tariff restrictions.
– The passage of expensive, hand-crafted Indian textiles to Britain, which had been very popular there, was obstructed by prohibitive tariff rates.
– British-Indian territory was developed as a source of food stuff and raw material for Britain, which fueled rapid growth in its manufacturing sector, crucial to the emergence of a powerful capitalist economy. (Indian exports consisted of raw cotton, jute, silk, oilseeds, wheat, indigo and tea.)
• After 1813, all policies were guided by the needs of British industry. These changes reversed the favourable balance of trade that India had enjoyed earlier. This phase laid the foundations of a classic colonial economy within India through the complex processes of commercialization of agriculture and deindustrialization.
• After 1813 in addition to export surplus, the company extracted wealth of India as Home Charges to England. These Home Charges included besides other forms of expenditure, payment of interest on the Indian debt. By 1858 Indian debts stood at 69.5 million. India got no adequate economic or material return for this export of wealth to Britain.

Phase of Finance Imperialism (1858 onwards)

• This phase begun from the 1860s, when British India came directly under the control and sovereignty of the British crown.
• British capital was invested in India in diverse economic fields in the latter half of the 19th century.
• Finance capital became the new most powerful mode of colonial exploitation.
• Investment were in the form of loans which were raised in England by the Secretary of State on behalf of Indian Government and by semi – public organisation mostly for investment in railways, irrigation, development of ports, hydro electric projects, etc. and also as foreign business investment in India. Although, this capital was invested in the colonies to sustain the rapid inflow of raw materials to fuel further expansion of industrial production.
• In this phase, on the one hand indigenous handicrafts faced impoverishment, on the other hand, there were few attempts at developing modern industries in the colony. British capital was initially invested in railways, jute industry, tea plantations and mining.

Land Revenue Policy

• After assuming control in different parts of India, the company followed a number of methods for the collection of land revenue depending on the local conditions. Mostly it was in the form of revenue farming.
• Gradually the company acquired the knowledge about the land revenue system prevalent in India and devised long term policies in different regions. The main aim was to increase the tax collections with little concern for the peasantry or age long practices followed in India.
• Mainly three types of settlements were followed in different parts of the country.

Permanent Settlement

• Lord Cornwallis’ most conspicuous administrative measure was the Permanent Land Revenue Settlement of Bengal. In 1793 Permanent Settlement for Bengal, Bihar and Orissa was introduced. Its special features were:
(a) The zamindars of Bengal were recognised as the owners of land as long as they paid the revenue to the East India Company regularly.
(b) The amount of revenue that the zamindars had to pay to the Company was firmly fixed and would not be raised under any circumstances. In other words the Government of the East India Company got 89% leaving the rest to the zamindars.
(c) The ryots became tenants since they were considered the tillers of the soil.
(d) This settlement took away the administrative and judicial functions of the zamindars.
• The Permanent Settlement by declaring Zamindars as owners of land brought into existence a wealthy and privileged class of zamindars which owed its existence to British rule.
• This class was therefore compelled by its own basic interests to support British rule.
• The Permanent Settlement was later extended to parts of Banaras and North Madras.
• With the Permanent Settlement, the company lost all contact with the peasants who were now at the mercy of the zamindars.
• The fixation of revenue had no scientific basis and was adhoc.
• The long standing ties between peasant and zamindars were arbitrarily annulled.
• The burden of land revenue was very high.
• The Zamindars also faced problems. Their zamindaries were auctioned for non-payment of revenue. This encouraged a new group of people to become Zamindars.
• The urban based merchants, speculators, money lenders, etc. bought zamindaries. This group had no permanent interests in the development of land or the welfare of peasantry.
• As a result a number of peasant uprisings took place in this region. The prominent were in 1795 in Panchet, 1798 in Raipur, 1799 in Balasore and in 1799-1800 in villages around Midnapore.
• Bengal once known as the granary of the East became almost barren. Hunger and famine, death and disease stalked the country.

Ryotwari Settlement

• The Ryotwari settlement was introduced mainly in Madras, Berar, Bombay and Assam. Sir Thomas Munro introduced this system in the Madras Presidency.
Under this settlement:
– The peasant was recognised as the proprietor of land.
– There was no intermediary like a Zamindar between the peasant and the government.
– As long as the peasant paid the revenue in time, he was not evicted from the land.
– The land revenue was fixed for a period from 20 to 40 years at a time.
• Here the British also recognised the mirasdars (i.e. members of village communities) and peasants who paid tax direct to state. These mirasdars became small landlords.
• The ryots right of ownership was however negated by three factor:
(a) Exorbitant land revenue;
(b) Government’s right to enhance land revenue at will; and
(c) They had to pay revenue even when their produce was partially or wholly destroyed.
• The pasture and wasteland which belonged to the village communities were now appropriated by the state. The burden of revenue also increased.

Mahalwari Settlement

• In 1833, the Mahalwari settlement was introduced in the Punjab, the Central Provinces and parts of North Western Provinces.
• Under this system, the basic unit of revenue settlement was the village or the Mahal. As the village lands belonged jointly to the village community, the responsibility of paying the revenue rested with the entire Mahal or the village community. So the entire land of the village was measured at the time of fixing the revenue.
• Though the Mahalwari system eliminated middlemen between the government and the village community and brought about improvement in irrigation facility, yet its benefit was largely enjoyed by the government.

Impact of British Policy on Indian Handicrafts

• During eighteenth century India was far ahead in traditional handicraft industry and the production of objects of art.
• The textiles were the most important among the Indian industries. Indian cotton, silk and woolen products were sought after all over the world. Particularly, the muslin of Dacca, carpets of Lahore, shawls of Kashmir, and the embroidery works of Banaras were very famous.
• Ivory goods, wood works and jewellery were other widely sought after Indian commodities.
• Other important centres of textile production were Krishnanagar, Chanderi, Arni and Banaras.
• Dhotis and dupattas of Ahmedabad, Chikan of Lucknow, and silk borders of Nagpur had earned a worldwide fame.
• Some small towns of Bengal besides, Malda and Murshidabad were very famous for their silk products.
• Kashmir, Punjab and western Rajasthan were famous for their woolen garments.
• Besides textiles, India was also known widely for its shipping, leather and metal industries.
• Indian fame as an industrial economy rested on cutting and polishing of marble and other precious stones and carving of ivory and sandalwood.
• Moradabad and Banaras were famous for brass, copper, bronze utensils. Nasik, Poona, Hyderabad and Tanjore were famous for other metal works. Kutch, Sind and Punjab were known for manufacturing arms.
• Kolhapur, Satara, Gorakhpur, Agra, Chittor and Palaghat had likewise earned a reputation for their glass industries.
• Making of gold, silver and diamond jewellery was another important industrial activity in which many places in India were specialized.
• These entire handicrafts industry indicated a vibrant economy in India.
• The Indian handicraft industry begun to decline by the beginning of the 18th century.
• The policies followed by the English East India Company proved to be highly detrimental to the Indian handicrafts industry. The Indian market was flooded with the cheap finished goods from Britain. It resulted in a steep decline in the sale of Indian products both within and outside of the country.
• In 1769, the Company encouraged the cultivation of raw silk in Bengal while imposing restrictions on the sale of its finished products.
• In 1813 strategies were devised by the Company to enhance the consumption of finished goods from Britain. In this respect the tariff and octroi policies were suitably modified to suit the British commercial interests.
• Moreover, goods from England could only be brought by the English cargo ships. As a result of all these policies, the Indian textiles could not enter the British market, whereas the Indian market was flooded with British goods.
• With the rise of British paramountcy in India, the process of decline in the power and status of Indian rulers started diminishing. Thus, the demands for the domestic luxury goods like royal attires, armory and objects of art by the Indian royalty also reduced drastically. With the disappearance of the traditional dynasties, their nobility also passed into oblivion. This led to a sharp decline in the demand for traditional luxury goods.
• The Industrial Revolution led to the invention of new machinery in Europe. Power looms replaced handlooms. In India also the advent of machines led to the decline of handicrafts as the machine-made products were available at cheaper rate and more goods could be produced in much lesser time.

Development of Indigenous Industries (During Finance Imperialism Phase)

• During the phase of Finance Imperialism, the Indian money market was dominated by European banking houses.
• While British entrepreneurs had easy access to capital made available by this banking network, Indian traders had to depend on family or caste organizations for their capital needs.
• Before the First World War, British Managing agencies controlled 75% of industrial capital, and most of the profits from this limited industrialization were also sent back to Britain.
• Inspite of heavy odds, Indian entrepreneurs found opportunities to expand and grow, whenever Britain underwent periods of economic hardship. During the First World War, G.D.Birla and Swarup chand Hukumchand invested in the jute industry. Gradually their control started expanding into other areas like coal mines, sugar mills and paper industry, and bought some European companies.
• The greatest success of Indian capital was seen in the cotton industry in western India, which took advantage of high demands during the war years (1914-18) to consolidate its successes, and eventually was in competition with Lancashire.
• Traditional trading communities like Gujarati, Banias, Parsis, Bohras and Bhatias became important in this sector.
• The Tata Iron and Steel Company under government patronage provided leadership to the fledgling iron and steel company of India.
• After the first world war, links with the foreign market was re-established, but again in the Depression years (1929-1933), the domestic market became relatively free to be exploited by indigenous industry, as foreign trade declined.
• The colonial government also provided some protection to the sugar and cotton industries, in the face of falling prices in the agricultural sector.
• Low prices forced capital from land into the manufacturing sector. Indians also ventured into the field of insurance and banking.
• During the Second World War (1939-45), with the decline of influence of foreign economies, Indian entrepreneurs managed to make huge profits. Strengthened by its limited success, the Indian capitalist class strengthened their links with the nationalist movement.
• Indian entrepreneurs demanded for the establishment of heavy industries under state ownership and organized themselves to resist the entry of foreign capital.

Drain of Wealth Theory

• The potential for growth remained depressed given the massive poverty of the Indian people.
• Early Indian nationalists like Dadabhai Naoroji, M.G. Ranade and R.C. Dutt had expected Britain to undertake capitalist industrialization in India, but were deeply disillusioned with the results of colonial industrial policies.
• Consequently, they formulated a strong economic critique of colonialism in the late nineteenth century.
• Dadabhai Naoroji put forward the drain of wealth theory. He mentioned this theory in his book ‘Poverty and Un-British Rule in India’. He put forward the idea that Britain was draining and bleeding India and that, too, for nothing.
• Poverty in India, according to them, was the result of a steady drain of Indian wealth into Britain-a result of British colonial policy.
• This drain occurred through the interest that India paid for foreign debts of the East India Company, military expenditure, guaranteed returns on foreign investment in railways and other infrastructure, importing all stationery from England, ‘home charges’ paid for the Secretary of State in Britain and salaries, pensions and training costs of military and civilian staff employed by the British state to rule India.
• According to them, even if small fraction of it be invested within the country it could have helped to generate a surplus to build a capitalist economy.

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