The East India Company: The World's Most Powerful Corporation (The Story of Indian Business) (14 page)

Nandakumar was an officer in the nawab’s service who had earlier served under Hastings. In 1775, he brought a public charge against Hastings of receiving bribe from the nawab. Had he won the case, Nandakumar could hope for rich rewards from Hastings’s rivals, for he was almost certainly a protégé of Francis and an enemy of Hastings’s old friend Nabakrishna Deb. However, events moved too quickly for him. A faction in the nawab’s service loyal to Hastings brought a charge of forgery against Nandakumar in the newly established Supreme Court at Calcutta. The chief justice was Hastings’s old school friend, Elijah Impey. Impey passed judgement on the case in a very short time and sentenced Nandakumar to death, a legitimate punishment for forgery in those days. No single episode hurt Hastings’ reputation as badly as the death of Nandakumar. For the ordinary Bengalis it was symbolic of the amorality of the Company’s rule, or ‘European despotism’ as an English merchant referred to it. The execution drew a massive crowd of spectators. As soon as it was over, thousands stampeded to the Hooghly to wash away the sin of watching the murder of a Brahman.

When Francis failed to gather enough support for his claim to the governor-general’s seat, he collected a long list of complaints on corruption sponsored by Hastings. In 1785–86, these evidences found an enthusiastic and powerful audience.

Edmund Burke, philosopher, Parliamentarian, a leader of the Whig opposition and the most influential orator of his time, became interested in the Company possibly in the late 1760s, when the Parliament became worried about the fluctuating share prices. His own immediate family had suffered in the stockmarket crash. But Burke’s misgivings about the Company were founded not only on personal experience. In the 1770s, he was appointed a member of a select committee assessing a 1773 regulating act. Once his gaze was fixed upon India, one example after another of high-handed actions by Company officers seemed to present themselves.

In the next ten years, Burke developed a precise critique of Company rule in India. For him, a rule by merchants seeking profits, in a world where institutions of the state were lacking or had been destroyed, created untrammelled corruption everywhere. This was true of course. But his views about the Company government still needed a point of reference, and here Burke’s ignorance about India was exposed. Many of the acts of corruption he accused the Company of, the employees of the Company believed were part of the Indian tradition of statecraft, the practice of obligatory cash rewards or bribes to officers of state, for example. In Burke’s mind, the proxy wars in the Carnatic were acts
of political cynicism. In fact, in eighteenth-century India, military and political opportunism was the norm, not an exception introduced by the British.

Having identified a whole system gone wrong, Burke pounced on a single individual in his search for a remedy. Harnessing all of his extraordinary intellectual and moral energy, he fell upon Hastings. Francis eagerly supplied him classified information on Hastings. One man now epitomized the whole rotten system in India. A highly charged Burke persuaded the Parliament to launch an impeachment, or a trial before the Lords, against Hastings. The trial began in 1788, three years after Hastings had returned home, intending to spend the rest of his life as a country squire.

There was every sign that Hastings enjoyed the public attention at first, partly because he was convinced that there was no case against him, and partly for the reason that the trial was a crowd-puller. However, Burke’s formidable oratory, the mounting cost of the trial, and the dirty linen that came to be washed in public eye, made this a serious business for him. Among the charges against him were those of taking bribes, the death sentence of Nandakumar and sheltering cruel and corrupt zamindars as a reward for personal loyalty.

Serious as these charges were, the nine-year long trial ended with an overwhelming verdict of not guilty, to
general public approval. Burke had overstepped judicial propriety by accusing Hastings of conspiring to murder Nandakumar. The more serious charges of personal corruption could not be proven, and it looked to almost everyone except Burke that Hastings was being made something of a scapegoat. Burke lost the case, but the significance of the point he made was not lost on the Parliament. Governance in India could not be left to the discretion of a group of opportunistic men driven by the lure of making quick money. With this episode, it can be said, the British empire in India began.

Burke drew inspiration from a book published six years before the trial began, a book that had already done irreparable damage to the case for the Company.

In 1776, Adam Smith published
An Inquiry into the Nature and Causes of the Wealth of Nations
. The book presented a case for liberalism. For this purpose, it was necessary to destroy the case for monopoly. Smith’s primary example of the abuses of monopoly was the East India Company. But unlike contemporary critics of monopoly, who had confined themselves to the damage that monopoly caused to private enterprise, Smith also considered the economy of Bengal. The Company in India, for him,
was an example of a special kind of distortion. Monopoly was bad, but far worse was a monopolist that ran a state. Having shown how the monopoly charter had led to an inflation of Indian goods in British markets, Smith argued that a government run by traders made private profits rather than public welfare the goal of the state, and hurt commerce itself. ‘If the trading spirit of the English East India Company’, he wrote, ‘renders them very bad sovereigns; the spirit of sovereignty seems to have rendered them equally bad traders’. Having become preoccupied with warfare and political contest, the Company exposed itself to bankruptcy and ever more dependence on government support.

Justly influential as this assessment was, Smith was not completely correct in his evaluation of the situation in India. He assumed that the countries such as Bengal where the Europeans ruled were ‘more fertile, more extensive; and, in proportion to their extent, much richer and more populous than Great Britain’; which led him to conclude that European plunder reduced a wealthy people to poverty. The truth was that Bengal was a considerably poorer region than England in the 1770s. Plunder, a favourite word in Smith’s vocabulary apropos the non-Western world, was directed at the jewel hoards of the idle rich in India rather than the savings of the ordinary folk. Further, in his attempt to prove his
assumptions right, Smith overlooked the organizational character of the Company. He did not see the split personality of the firm. What he saw happening in India was not, as he believed, a move orchestrated by the London merchants pursuing the path of an expansionist monopoly, but one pushed by the traders and soldiers stationed in India against the advice of the stakeholders in London. Contrary to his analysis, the conquest of Bengal was a sign of weakness of the firm, not a sign of its strength.

Still, Smith gave a theoretical shape to a historic misgiving on monopoly. He placed Indian interests squarely in the middle of the debate on the East India Company. And he drew attention to the real danger posed by a coincidence between profit-seeking and running a state.

The apparatus for control and regulation of the Company’s territories by the Parliament had already been in the making.

The decade following the Company’s elevation as the revenue administrator of Bengal caused much embarrassment to the government in Britain. The Company’s representatives in India worked in open
defiance of orders from above. Some who had gone to India as clerks or lieutenants returned home with diamonds and gold presented to them by grateful Indian princes. The Bolts-versus-Verelst affair was a scandal. The territorial acquisitions raised a question of principle. Who did these lands belong to, the Company or the Crown?

The Company itself was in a crisis as its military enterprise cost huge amounts of money, the textile business was in trouble because of the rising prices of cloth in India, and income from tea fell because of new taxes. The revenues from Bengal, for some time used to finance trade, war and the establishment, did not increase as much as was necessary, and in fact suffered a shock after the 1770 famine in Bengal. The stockmarket reflected these uncertainties, on several occasions bringing the Company to the brink of disaster. In short, the nabobs seemed to have ruined the employer that they worked for.

The Company as ruler in India posed an awkward problem in British politics. Could there be two sovereigns ruling in the name of Britain, or should all overseas empires belong to the one and only Crown? The king himself, George III, had enough distractions at home to be interested in the kingship of Bengal. The Company maintained the pretence of ruling in the name
of the king. But the rule was founded on principles of profit, which, many believed, had delivered a corrupt rule for the Indians in the name of the king of Britain. Popular support for political missions in the East was quite low in view of the fluctuations in the share market. All of this provided ammunition to the faction of the Parliament seeking more regulation of the Company.

In 1772, the prime minister Lord North approved a large loan towards a rescue operation, together with reformed taxation on tea that fuelled the demand for independence in America. North was one of those politicians who believed that the Company’s acquisitions in India ought to be governed by the Crown. If he desisted from carrying out this agenda, it was because the Company’s role was already in the process of getting regulated. An East India Regulating Act in 1773 raised the salaries of the Indian administrators while prohibiting them from private trade. The Act also provided for a Supreme Court for Calcutta. North’s Regulating Act, by imposing the Parliament’s authority upon European settlers in India, consolidated the empire in Asia. Interestingly, the same movement unleashed forces that led to the unmaking of another empire in North America. As the historian Peter Marshall has shown in a recent book, quite in contrast with the situation in India, the American settlers, believing that they were
British subjects born to liberty, fiercely resisted colonial authority.

Within India, efforts to bring comprehensive legislation matured in 1784, when a Parliamentary Act brought about by William Pitt established a more or less permanent framework for the administration of the Company’s territories in India. The Act subordinated the political affairs of the Company to a regulatory body set up by the Crown, known as the Board of Control. The demarcation of politics and economics, Crown and the Company, remained unclear for a long time afterwards. But the question, who really ruled India, became steadily less relevant with the increasing autonomy of the office of the governor general in India.

By the turn of the nineteenth century the East India Company had been transformed from a trader to an empire-builder. A new breed of aggressively imperialist heads of state, backed up by the Parliament, completed the transition.

‘The Political-Banditti Assailing the Saviour of India’, 1786. Warren Hastings, dressed like a Turkish general, rides a camel laden with the Company’s hard-earned money. He is attacked by Edmund Burke (left), Frederick, Lord North (centre) and Charles James Fox (right). © British Library Board.

THE FIRST STEPS in the direction of an empire began in Bombay. Frequent skirmishes with the Marathas and periodic run-ins with the smaller states of Gujarat led the Bombay Presidency to a fiscal crisis in the last decades of the eighteenth century. The administration considered winding up Bombay, but desisted on being persuaded by the private traders that the port still had life left in it, provided the Company could befriend and subdue the many kings who ruled the coast. The result was an alliance with Malabar and minor conquests in Gujarat and Saurashtra. The beginning of an opium trade with China brightened the prospects of the port city further. By the time of the Napoleonic wars, when cotton exports boomed, Bombay was firmly back in business.

The Napoleonic wars rekindled Anglo-French rivalry. During the Mysore Wars with Tipu Sultan, and the Second Anglo–Maratha War in 1803, the Indian armies
were led by French generals. The French were subdued, but the scene was set for a decisive showdown with the only remaining Indian military rival, the Marathas. When the Third Anglo-Maratha War ended in 1818, the Company was effectively the ruler of India.

To the contemporaries, the Company dominions were a different kind of state from the Indian ones. Despite the failure of Hastings to take firm command of the zamindars, his successors managed to impose their writ on the local bosses and thus controlled the fiscal and the military machine with a firm hand. Unlike most Indian states that relied on soldiers supplied by warlords and noblemen, the Company had a standing army financed out of expanding credit and land revenue. The government was run by administrators and not by bejewelled noblemen. Sensing the advantage, the governor Richard Wellesley (in office: 1796–1805) pursued a policy of imperialist expansion.

Commercial leadership, as this chapter will show, was passing on to private hands. Curiously, many amongst these private capitalists had become prosperous under implicit patronage of the East India Company.

The Company’s business had undergone a monumental change between 1750 and 1810. By the second half of
the eighteenth century, China became a very important growth area for the Company’s business. Initially the interest in the tea trade was secondary to textiles. But partly in response to massive growth in demand, which the private traders made the most of, and partly because of a Parliamentary prohibition of import of finished textiles (1720), tea emerged as the main business of the Company. As long as both Indian cloth and Chinese tea were paid for with silver acquired in Spain, India and China trades did not directly interact. But when silver flows became uncertain during the war of American independence, the Company needed to find ways of paying for tea with Indian goods. From the end of the eighteenth century, as we see below, Indian opium provided an answer to this need.

Involved as it had become with local affairs, the Company also lost much ground as a trader in India. Its textile business had been stagnant in volume for a long time, and began to decline after 1800 as the Industrial Revolution gained momentum. ‘Before the profitable trade of war … gave a mortal check to honest industry, the loom furnished a great and flourishing commerce’, wrote the Welsh naturalist Thomas Pennant in 1798. The ‘mortal check’ did not come from the ‘profitable trade of war’, however. The more serious check came from the invention and rapid spread of machine-spinning
of yarn. A reverse flow of yarn into India began from the early 1820s and cloth soon followed, finally ending a 200-year trade in Indian textiles.

On Indian shores, the Napoleonic wars left the fledgling American merchant fleet in a position of unusual strength. It was the only neutral shipping in the world’s waters. After the French and the Dutch East India Companies were disbanded at the end of the wars, and the English Company struggled on militarily and financially, the Americans occupied the premier place as the world’s carriers of Asian goods.

The retreat of the Company from trade opened the gates to economic migrants of many kinds. By 1800, Madras, Bombay, and especially Calcutta, had become home to substantial communities of Europeans and Indians who had adopted European habits. In the preceding decades, warfare had given rise to a military labour market in which Europeans commanded high wages. European mercenaries offered their services to the Maratha generals of Bundelkhand and Malwa, to Ranjit Singh of Punjab, Tipu Sultan in Mysore, and many others besides. The growing population of Europeans and the high wages that some of them received had stimulated demand for European-style consumer goods in India. Settlers created a market for carriages, furniture, palanquins, crockery and cutlery,
saddles, boots and shoes, salted meats, guns and pistols, watches and silverware. While some of the goods were imported, many immigrant European and Indo-European artisans made these goods in the Indian port cities.

A remarkable set of people who came to India in this time were the so-called Company painters. Some of them were contracted to paint Indian scenes for the edification of the officers, and others were fortune-hunters who hoped to create a market for their goods in Britain. Seen against Indian painting traditions, these artists developed a new idiom steeped in a historic-romantic mood. A good example of the difference between the old and the new styles of landscape painting would be the pictures of nawabi Murshidabad painted after 1757. A court artist painted the town as a joyous fairground where Hindus and Muslims, the poor and the rich, kings and commoners, men and women, met to have a good time together. Charles D’Oyly’s paintings of the town showed the desolate ruins of the magnificent Katara Masjid against the fading lights of a setting sun.

At the end of the 1700s, a number of English merchants and firms were doing business in the Company’s
government. Often in partnership with Indians, they set up import-export businesses in Calcutta. Dependent on the Company for trading licenses and repatriation of profits, they resented the dependence too, and campaigned for its end in Britain. They wanted the empire the Company had created, but did not necessarily want the Company to run a business using this power. The unfolding battle had much to do with the transformation of business in Britain.

For some time, there had been a growing rift between the group that two historians Peter Cain and Anthony Hopkins call ‘gentlemanly capitalists’, that is, bankers-cum-politicians centred in the City of London, and the manufacturers spread in the provincial towns. The former group was politically close to the owners of the Company, and had increased in wealth and power during the Napoleonic wars, which made London the global banking capital over Amsterdam and other continental financial centres. At the same time, a different class of capitalists, the merchants of the English provincial towns, was leading the Industrial Revolution. The Indo-European firms were, socially speaking, closer to this group, and shared more economic interests with them. When the Company’s charter came up for renewal in 1793, only a modest concession was made to them, since the resistance of London merchants to a dilution
of the charter was still quite strong. The new charter allowed for a part of the Company’s fleets to be used by private merchants. But this concession did not amount to much. Private merchants complained of the high freight rates and did not want to be tied to the Company’s warehouses.

These firms imported food and raw material from America. Wars in Europe and with America disrupted the trade, and increased the importance of India as an alternative source of raw material. These people were not the political mainstream, but inflation in food prices turned the balance of political advantage in their favour. Rising prices of bread led to import of rice from India and fears of possible shortage of American cotton saw efforts to import Indian cotton. The Company, as a conciliatory move to the manufacturing groups, had begun importing cotton from India. But the Liverpool merchants were not happy with the quality of Indian cotton, and argued argued reasonably that the end of the monopoly would see more cotton traders going to India to influence the peasants’ cultivation methods. The demands were relayed by Indian administrators to the commission of enquiry deciding the renewal of the Company’s charter in 1812–13.

Although the wars consolidated the power of the gentlemanly capitalists, in 1813, the City of London was
still in turmoil, unable to act in concert, and was losing interest in commodity trade. The manufacturers and petty traders, therefore, won the battle for the end of the charter, as Anthony Webster’s recent work has shown. In 1813, the new charter ended the Company’s monopoly of Indian trade. The Company did not cease to trade in India. It continued to import some silk and indigo thereafter. But the scale was smaller, and it began to wind up its factories one by one. The monopoly in the China trade was retained, and the freedom offered to private trade in India was restricted to the main Company settlements. Nevertheless, the concessions granted to provincial capitalists were unprecedented.

The practice of Company employees trading on their own was prohibited in the 1780s, opening up a vast field of enterprise for London merchants and participants in country trade to join in. With a new sense of empowerment egging them on, European private traders moved further inland. A new business, indigo manufacturing, became a field of employment of European capital. The production side of the business was located in the Bengal and Bihar countryside, often days’ journey away from Calcutta. The marketing and
the financial arms were based in Calcutta. ‘Houses of agency’ in Calcutta supplied credit to the planters, acted as agents of these firms, and handled remittances of profit.

Until 1813, the relationship between these firms and the Company was a bundle of contradictions. There was close interdependence. The Company’s bill of exchange, for example, was a favourite mode of remittance for the agency houses. Individuals moved between private enterprise and Company service with facility. The conquest of India had taken place in the teeth of opposition from the Company administrators in London. Standing up for private enterprise and expansion of British dominion were some individuals who had made their wealth in India. For example, David Scott of Bombay and Charles Cockerell of Calcutta, who had made their fortunes in the agency business, spent a great deal of their savings in supporting the growth of the empire in India. Still, the private interests of these firms frequently led them into quarrels with the Company. They did not like the Company in its role as a regulator of trade. Charles Forbes, one of the founders of the Bombay firm Forbes, Forbes and Campbell, spent the better part of his career as a politician in Britain campaigning against the monopoly charter.

Three examples illustrate the early history of these
first multinationals especially well. The founder of Paxton, Cockerell, & Co. was William Paxton, a soldier and mariner in his youth. In later life he joined the Company’s service as an assayer of gold and silver. While in this job, he started out as a trader in partnership with a colleague, Charles Cockerell. Both men made their money in India and culminated their careers as prominent merchant-bankers in London. Paxton was the great-grandfather of Archibald Wavell, one of the last viceroys of India. Palmer & Co., the largest of the agency houses about 1830, was established by a son of William Palmer, a Company officer and contemporary of Hastings. Palmer & Co. was a partnership between the brothers George and John Horsley Palmer. Although the Calcutta firm failed in 1833, the London end of the business survived and George Palmer later became a governor of the Bank of England. In 1813, Kirkman Finlay, son of James Finlay, managed an expanding empire of trade from his base in Glasgow. The firm of James Finlay was a leading cotton trader of Bombay in the 1870s and ended the nineteenth century as the major plantation company of south India.

In the middle of the nineteenth century, a new wave of entry into the world of Asian trade took place. Many of the firms that were then established, such as Mackinnon-Mackenzie, Jardine-Matheson and David
Sassoon, had presence simultaneously in Bombay, Calcutta, Singapore and Hong Kong, and were beginning to diversify from indigo and opium into steam navigation, tea plantations, breweries, tramways, construction and textile mills. They were a product of the time when the British empire was already an accomplished fact.

In all three cities, the agency houses developed close ties with Indian merchants and entrepreneurs. In Bombay, Jamsetjee Jeejeebhoy formed a partnership with Charles Forbes, and was the chief agent of Jardine-Matheson, the agency house of Canton. In Calcutta, between 1833 and 1846 Dwarkanath Tagore, the most prominent Bengali entrepreneur of his times, was a partner of William Carr and William Prinsep. A number of lesser known Indian firms and individuals partnered with European enterprise in indigo and opium.

It was not only merchants who came to India after 1813, many artisan-entrepreneurs did too. Tanneries, glass works, iron smelting and carpentry workshops were established. In Calcutta, Madras and Bombay could be found ‘British artisans and manufacturers of almost every description of trade that is exercised in [Britain]’. The area within these cities, which were to develop factories after 1850, began to grow as hubs of artisan enterprise. A good example would be the river bank
across Calcutta, in Howrah, where shipyards and warehouses had begun to develop long before the jute mills and engineering factories of the late nineteenth century.

A major interest of the agency houses was export of Bihar opium to China. The opium was made under license from the Company, but it was transported and sold in China by European and Indian firms who owned specially designed ships known as opium runners. The opium was paid for with the Company’s bills on India or London. The sellers either drew bills against silver, or paid for opium in the first instance with silver, which was exchanged for bills. By drawing bills in Canton, the merchants could safely remit their money to Bombay or London, whereas the Company received the silver that it needed to buy Chinese tea. In this way, opium enabled the Company to partially meet its adverse trade balance with China.