A free lunch- EIC and the idea of ‘double-government’
History itself is but a series of unintended consequences of actions. It is quite likely that Calcutta would not have outgrown its Factory Town status without Siraj’s seize of the city. Calcutta transformed into a bustling metropolis as it became the epicenter of British India; the capital from where the ever-burgeoning Indian empire was administered for the next 150 years.
The turning point was the Siege in 1756, followed by East India Company (EIC) victories in the Battle of Plassey in 1757 and the Battle of Buxar in 1764. However, Calcutta’s transformation did not occur immediately after EIC obtained the Diwani of Bengal, Bihar and Orissa. Initially, the Company was happy to let the Nawab of Bengal oversee the administration of provinces, while it collected the land revenues. It was EIC’s idea of a free lunch; not getting their hands dirty with the business of governing- administering justice, providing security and protection to residents, settling disputes- whilst helping themselves to the provinces’ tax revenues. It was supposed to be a risk-free, hassle-free enterprise- Clive said so, in plain language, to the Court of Directors [i]- but the reality of course turned out to be otherwise.
EIC’s free lunch was based on the concept of ‘double government’ formalised in the Treaty of Allahabad that EIC signed with Shah Alam in 1765 after winning the Battle of Buxar. The Treaty stipulated that, thenceforth, responsibilities of Diwani and Nizamat will be shared between EIC and Nawab of Bengal respectively; Diwani was the right to collect territorial and custom revenue, while Nizamat was the business of governing the province including provision of security and administration of justice. In a nutshell then, EIC hived off the cumbersome task of administration to the Nawab whilst keeping the lucrative right to land revenues for itself.
Another reason for EIC’s preference for ‘double government’ was that it kept the British state at bay. The Court of Directors rightly anticipated that the British government would not like its natural right to colonise foreign countries appropriated by a mere merchant company. So, EIC claimed that the Mughal Emperor is still in charge and that the Company is subservient to him (the reality was the reverse); the Emperor was, after all, much easier to control than the British state. The British Government tolerated the sham arrangement but extracted its price. From 1767 onward, EIC had to pay annually £400,000 to the British treasury as a compensation for the military ‘assistance’ provided by the British state.
The ‘double-government’ was a mess. The division of responsibilities was not clear to either party. But the main reason why the system came to an abrupt end in 1773 is that the Company committed the cardinal sin of defaulting on its annual payment to the British Treasury. The default happened in 1772, and with it started the intrusion of British Government in affairs of the Company and the demise of double-government.
[i] Clive explained the ‘free lunch’ of EIC, bestowed on it through the Diwani rights, in his letter to the Court of Directors dated 30th September, 1765. He wrote to the Court of Directors that “your revenues, by means of this acquisition, will, as near as I can judge, not fall far short for the ensuing year of 250 lacks of Sicca Rupees,including your former possessions of Burdwan. Hereafter they will at least amount to twenty or thirty lacks more. Your civil and military expenses in time of peace can never exceed sixty lacks of Rupees ; the Nabob’s allowances are already reduced to forty-two lacks, and the tribute to the King [the Great Moghal] at twenty-six ; so that there will be remaining a clear gain to the Company of 122 lack of Sicca Rupees, or ; £1,6 5 0,900 sterling.” (Cited in R C Dutt’s ‘Economic History of British India’, p.37, 1906)
