The East India Company was made the Diwan of Bengal on 12 August 1765; by then Mughal Emperor Shah Alam II. Thus, the Company became of the chief financial administrator of the territory of Bengal.
The Company officials understood one important aspect of expanding their base in India. They understood the importance of those who had ruled the countryside in the past, and had enjoyed authority and prestige. The Company wanted to be careful not to annoy those people.
Growth of Revenue: Initially, the Company was just interested in collecting revenue so that its trade and other expenses could be financed. But the Company was not interested in setting up any regular system of assessment and collection. The revenue was enough to double the purchase by Company within five years.
Growth of problems for common people: But the Bengal economy was facing a deep crisis. Artisans were being forced to sell their goods to the Company at low prices and hence most of them were deserting their villages. Peasants were not able to pay the dues. Production by artisans declined and farm production also declined. In 1770, a terrible famine hit Bengal. It killed 10 million people.
The Company had to take some steps to improve agriculture by improving investment in land. The Permanent Settlement was introduced in 1793. According to this, the rajas and taluqdars were recognized as zamindars and were given the responsibility of revenue collection from the peasants. The amount to be paid was fixed permanently and hence the name Permanent Settlement. The Company officials felt that it would ensure a regular flow of revenue. They also felt that this would motivate the zamindars to invest in improving the land. The zamindars would benefit from increased production because the revenue demand would not be increased.
By the early nineteenth century, the Company officials were planning to change the revenue system. A new system was devised Holt Mackenzie. Mackenzie was convinced about the importance of village in the north Indian society. He wanted to preserve this important social institution. He sent collectors to different villages to take a survey. Data regarding land size and type and customs and rights of different groups were collected. The revenue estimation was done for each village. The village was known as mahal and hence this system was known as Mahalwari System. It was also decided to revise the revenue demand periodically. The village headman was given the responsibility of revenue collection. This system was first implemented in the villages of the North Western Provinces of the Bengal Presidency. Most of this area now comes under Uttar Pradesh.
This system was also known as the ryotwari system. It was first tried on a small scale by Captain Alexander Read. He tried it in some of those areas which were taken over after the defeat of Tipu Sultan. This system was subsequently developed by Thomas Munro. This system was gradually implemented all over south India.
There were no traditional zamindars in the south. Hence, the settlement had to be directly made with the cultivators (ryot). The ryots had been tilling the land for generations. Their fields were carefully surveyed to make the revenue assessment.
The revenue officials wanted to increase the income from land. Hence, they fixed very high revenue demand. Peasants were not able to pay the revenue. The ryots fled the countryside and villages became deserted in many regions.
Crops for Europe: By the late eighteenth century, the Company was also trying to expand the cultivation of opium and indigo. In the subsequent 150 years, the British also persuaded or forced the cultivators to produce other crops; like jute, tea, sugarcane, cotton, wheat and rice; to be supplied to Europe.
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