British Government & Economic Policies (1757–1857) — UPSC Modern History Notes

1757–1765 (Acquisition of Power) : Company gained political control after Plassey (1757) and Buxar (1764) . Treaty of Allahabad (1765) granted Diwani rights (revenue collection) in Bengal, Bihar, Orissa .

Dual Government (1765–72) : Company collected revenue (Diwani), while the Nawab retained administration (Nizamat). Led to chaos, mass corruption, and the Bengal famine (1770) . Abolished by Warren Hastings .

1773: Regulating Act → Governor of Bengal became Governor-General of Bengal ( Warren Hastings first ); first step of Parliamentary control .

1781: Amending Act (Act of Settlement) → clarified Supreme Court powers to reduce conflict with Governor-General’s Council.

1784: Pitt’s India Act → Created Board of Control in Britain; established a dual system of control (Company's Court of Directors + Parliament's Board of Control).

1813: Charter Act → Ended Company’s monopoly in trade (except tea and China trade); allowed Christian missionaries to operate legally.

1833: Charter Act → Created the position of Governor-General of India ( Lord William Bentinck first ); Company lost all trade rights; India became a purely administrative empire.

1853: Charter Act → Introduced open competition for Indian Civil Services (ICS); effectively signaled that the Company’s rule could be ended anytime.

Administrative expansion : Creation of Presidencies (Bengal, Madras, Bombay), judicial institutions (Supreme Court, later High Courts), and an expanding civil service to collect revenue and maintain law and order.

Role of Residents and Political Agents : British Residents at princely courts exercised heavy influence, negotiated treaties, and monitored succession — key to indirect rule.

Permanent Settlement (1793) : Introduced by Lord Cornwallis in Bengal, Bihar, Orissa . Zamindars were recognized as hereditary landlords; revenue was fixed permanently. Led to absentee landlordism and peasant oppression.

Ryotwari Settlement (1820s) : Introduced by Thomas Munro in Madras, Bombay. Revenue settlement was made directly with the cultivators (ryots). Revenue was revised periodically (not fixed), often leading to high demands.

Mahalwari Settlement (1833) : Introduced by R.M. Bird in the NW Provinces & Punjab. Settlement was made with the entire village community (mahal), which was jointly responsible for paying revenue.

Taluqdari System (Awadh) : After annexation, taluqdars (landlords) were often dispossessed and then restored as landlords under the British, increasing their power and leading to oppression.

Indigo System (Bengal) : European planters forced peasants to grow indigo (a cash crop) on their best land; sparked the famous Indigo Revolt (1859–60).

Consequences : Creation of absentee landlords, massive indebtedness among peasants, decline in traditional village institutions, and periodic agrarian unrest and famines.

De-industrialisation : Indian handicrafts (especially textiles) collapsed due to the influx of cheap British machine-made goods and discriminatory tariffs that favoured imports over Indian exports.

Trade Pattern Reversal : India exported raw materials (cotton, indigo, silk, opium) and imported manufactured goods, reversing the favorable pre-colonial trade patterns.

Drain of Wealth Theory : Nationalists like Dadabhai Naoroji argued that India's surplus was systematically transferred to Britain through salaries, pensions, and 'Home Charges' (expenses paid in Britain), causing India's impoverishment.

Opium Trade : The Company encouraged widespread opium cultivation in Bihar and Bengal. The opium was exported to China; these profits financed crucial Company operations and indirectly contributed to the Opium Wars.

Infrastructure Development : Railways (from 1853), telegraph, roads, and ports were developed—primarily to move troops, raw materials from the interior to ports, and integrate markets favorable to Britain, not for Indian industrial growth.

Fiscal policies : High land revenue demands and tariffs were structured to extract surplus; currency and banking changes primarily favoured British merchants.

Rise of New Classes : The revenue systems created powerful new classes of Zamindars and moneylenders, while the peasantry became increasingly impoverished and indebted.

Urban Shift : Traditional inland urban centers declined, while the port cities ( Calcutta, Bombay, Madras ) and administrative towns expanded.

The Educated Elite : A new English-educated middle class emerged from missionary schools and colleges, forming the intellectual and administrative backbone for later nationalist leadership.

Social and Religious Reforms : Efforts by Indian reformers (like Raja Ram Mohan Roy) and missionary activity led to legal reforms against practices like Sati and promoted widow remarriage.

Social Unrest : Economic distress, land alienation, and cultural shocks created deep social unrest, leading to localized revolts (e.g., Santhal, Indigo) and contributing to the Revolt of 1857.

Long-term Institutional Changes : The British left permanent institutional legacies, including modern legal codes, the railways, the postal and telegraph systems, and western-style education.

Capital Investment Pattern : Most British investment in India was channelled into areas serving colonial interests: Railways, plantations (tea, coffee, indigo), coal mining, and shipping, rather than native Indian industry.

The 'Guaranteed Return' System : The British government often guaranteed a minimum profit (e.g., 5% to 6%) to British investors who invested in Indian railways. This ensured risk-free profits for British capital, regardless of the railway's actual earnings, placing the risk entirely on the Indian taxpayer.

Impact on Indigenous Industry : This capital inflow led to a 'drain of skilled capital' away from indigenous sectors like handicrafts and small-scale industries, which couldn't compete with subsidized or protected British capital.

Rise of Modern Industry : While the late 19th century saw the emergence of a few modern Indian-owned industries (like cotton textiles in Bombay, jute in Calcutta), these efforts were often hampered by British government policies (e.g., lack of state support, excise duties on Indian textiles).

Role of Finance : The modern banking structure that emerged was initially geared toward financing external trade (export of raw materials) and British businesses, marginalizing Indian entrepreneurs.

Context : Pressure from humanitarian movements and the abolitionist movement in Britain (which had already abolished slavery in its colonies in 1833) spurred action in India.

Prevalence in India : Various forms of slavery, bonded labour, and the transfer of people as property (especially for domestic or agricultural work) were prevalent in parts of India.

The Act (1843) : The Indian Slavery Act (Act V of 1843), passed during the time of Governor-General Lord Ellenborough, officially prohibited the recognition of slavery by courts.

Key Provisions : The Act did not completely abolish the institution of slavery in practice immediately, but it stripped the master of his legal right to claim the slave. It stated that:

— No person could be subjected to any rights of property as a slave.

— Courts could no longer enforce contracts for slave service or property claims related to slavery.

Limitations : The legislation was a slow social process; debt bondage and various forms of forced labour continued illegally for many years.

The Motive (British Competition) : Indian factory products, especially cotton textiles in Bombay, were competing effectively with British goods. British manufacturers demanded legislation to increase production costs in India to maintain their competitive edge, especially concerning long working hours of Indian labour.

The First Factory Act (1881) : Passed during the time of Lord Ripon, it was the first piece of labour legislation in India. It primarily focused on the protection of children (aged 7–12).

— Key Provisions: Prohibited the employment of children below 7 years, limited working hours for children between 7 and 12 years to 9 hours a day, and mandated four holidays a month.

The Second Factory Act (1891) : Passed during the time of Lord Lansdowne, it extended protection to women and improved regulations for children.

— Key Provisions: Limited working hours for women to 11 hours a day, reduced working hours for children to 7 hours a day, and provided a compulsory one-hour rest period for all employees.

Limitations : These early acts were extremely limited in scope. They did not apply to government factories, plantations (where conditions were harshest), or small workshops, and thus protected only a small fraction of the workforce.