East India Company – The Origin and Rise

The British arm, East India Company has been described as the first ever multinational. It carried goods, people and ideas across the globe. However, its powerful legacy endures in India till date in the form of the Indian army, civil services and the education pattern. It achieved the full transition from trader to a ruler, sufficiently fulfilling Adam Smith’s prediction that trade and government were incompatible within a “company of merchants.” So, the history of the EIC offers lessons and points worth pondering to administrators and modern governments.

Imagine a company that came with a business, prospered for over 250 years and ruled a subcontinent – it’s none other than the East India Company (EIC). It grew from a group of dynamic merchants to become the guiding hand behind the crowning glory of the British Empire.

Lured by the Portuguese profits, the English too wished to have their share of wealth and profits. And also, the industrial revolution was progressing at a rapid pace, a new market had to be developed. They also thought that the vast Indian mainland could be a market for their finished goods. Besides, the disintegration of the Mughal Empire in India was taking place and a political vacuum was in the offing, which had aroused the British interest in the subcontinent.

The EIC was formed on December 31, 1600 A D and was given English monopoly on all trade with the East Indies in order to compete with Dutch merchants. It was incorporated by a royal charter, under the title “The Honorable Company of London Merchants Trading into the East Indies,” by Queen Elizabeth which became known as the East India Company. There were 125 shareholders in the original EIC, with a capital of £72,000. The early voyages of the company from 1601 to 1612 are distinguished as the “separate voyages” because the shareholders individually bore the cost of each voyage and reaped the whole profits, which seldom fell below 100 percent.

After 1612, voyages were conducted on the joint stock system for the benefit of the company as a whole. Huge profits were made from the initial voyages to Southeast Asia, mainly from the sale of pepper acquired from the Sumatran and Javanese trading ports and sold in London. Subsequently, the EIC was building more and bigger ships and increasing the number of shareholders. There were separate joint stocks until 1657, when a permanent joint stock was raised.

Their stated intention was, in their Charter’s terms:

“… that they of their own adventures, costs and charges as well as forth honor of this our realm of England as for the increase of our navigation and advancement of trade of merchandise … might adventure and set forth one or more voyages, with convenient number of ships and pinnaces, by way of traffic and merchandise to the East Indies…”

Entering India

The company’s vessels landed for the first time in India at Surat in 1608. The official representative of James I, to the Mughal Empire, Sir Thomas Roe established a ‘factor’ in 1615, which was basically a warehouse, built to store goods for ships to pick up. By that time the Portuguese were already well-established in India and were influential in the court of the Emperor Jahangir. The stronghold of Portuguese resulted in conflicts, particularly the strained diplomatic relations with England.

There was a major sea battle off the east coast of India, in which the Portuguese were defeated and the English became the virtual rulers of the Indian Ocean. With this humble beginning, the EIC gradually expanded its trading activities by placing many trading posts along the coast of India and established three Presidencies at Kolkata, Mumbai and Chennai.

The EIC gained political supremacy when Robert Clive, one of the company’s military officials defeated the Nawab of Bengal in the famous Battle of Plassey in 1757. This was followed by the granting of revenue-collection rights in the State on the Emperor’s behalf. The practices of the company left Bengal, once a rich and prosperous province into an impoverished land. Suddenly the company found itself administering the whole of Bengal, which it was not suited for. The EIC increasingly relied on the Crown for support and eventually the resemblance to a trading company was lost and the EIC became more and more involved in building an empire in India. The 18th century was a very important period in the EIC’s history. The EIC expanded into Northern India and was increasingly involved in the China trade.

Its trading commodities included cotton, silk piece goods, indigo, and saltpeter, with spices from South India. The company extended its activities to the Persian Gulf, Southeast Asia and East Asia. In London, the company’s headquarters was given a better look to reflect its importance as the headquarters of a great company.

However, the company found itself burdened with massive military expenditures and seemed on the verge of ruin until the government stepped in and passed the Parliament Act of 1773. This Act provided greater Parliamentary control over the company and placed the rule of India, under a Governor-General.

Warren Hastings was appointed the first Governor-General and the expansion of British power was pursued aggressively. The British sought to eliminate the Indian rivals and the expansion was achieved with ruthless efficiency and they finally achieved control over India. Later, under Governor-General Charles Cornwallis (1785-1793), the company was transformed from a trader to a sovereign.

By the beginning of the 19th century most of the economic interests of the subcontinent were tied closely to the company. Due to the huge profits, corruption also started in the company and finally, the EIC was dissolved in 1858 after the Indian Mutiny and the Crown became responsible for administration of India.

Greatest Enterprise

By the middle of the 18th century, the EIC had become one of the great mercantilist enterprises in the world. Historians say that it all happened in a fit of absence of mind, which was more on the part of the local rulers than of their conquerors. The EIC became one of the greatest financial corporations and a core institution in Britain’s financial dominance of world trade.

On the competition front, the EIC met with opposition from the Dutch in the Dutch East Indies (now Indonesia) and the Portuguese. The Dutch virtually excluded the EIC from the East Indies after the Amboina Massacre in 1623. However, the defeat of the Portuguese in India won them more trading concessions from the Mughal Empire.

In the early 19th century, the company financed the tea trade with illegal opium exports to China. Chinese opposition to this trade precipitated the first Opium War (1839-42), which resulted in a Chinese defeat and the expansion of British trading privileges; a second conflict, often called the ‘Arrow’ War (1856-60), brought increased trading rights for Europeans. Subsequently, investment in the East India Company stock was the most attractive investment available in the nascent Stock Market.

Building British Empire

By establishing a hold on India, Britain benefitted immensely. The transfer of wealth from India through unprecedented levels of taxation on Indians of all classes funded the ‘Industrial Revolution’ and laid the ground for ‘modernization’ in Britain. As early as 1812, the EIC report had stated, 

“The importance of that immense empire to this country is rather to be estimated by the great annual addition it makes to the wealth and capital of the Kingdom...”

The words of Lord Curzon, the Viceroy of British India in 1894 was quite unequivocal, “India is the pivot of our Empire .... If the Empire loses any other part of its Dominion we can survive, but if we lose India the sun of our Empire will have set.” Historians argue that the most important aspect of colonial rule was the transfer of wealth from India to Britain. In his pioneering book, “India Today”, Rajni Palme Dutt conclusively demonstrates how vital the transfer of wealth was to the Industrial Revolution in Britain. Several patents that had remained unfunded suddenly found industrial sponsors once the taxes from India started rolling in.

Without the capital from India, British banks would have found it impossible to fund the modernization of Britain that took place in the 18th and 19th centuries. Philip Lawson, the author of “The East India Company: A History,” argues that the East India Company’s history can no longer be seen as somehow detached from the mainstream history of Britain itself, which was open to, and influenced by, imperial as well as domestic considerations throughout these years. Contemporaries did not view the company’s world at home and abroad as separate spheres: Indeed, the company’s history is inextricably bound up with Britain’s own rise from a backward European State to a global imperial power. The story of the company can thus be understood only within the context of the broader themes.

N Janardhan Rao, Senior Economist.