The East India Company: From Traders to Rulers

How a trading company chartered in London came to rule much of India, and what its control over revenue meant for the Indian economy.

One of history’s most remarkable transformations was how a trading company became a ruler of millions.

A trading company

The English East India Company received a royal charter in 1600 to trade with Asia. It was a joint-stock company, owned by shareholders who shared its profits and risks. At first, it set up trading posts, called factories, at places such as Surat, Madras, Bombay and Calcutta, buying textiles, spices, indigo and saltpetre.

From trade to power

As Mughal power weakened in the 18th century, the Company became involved in regional politics and built its own army.

Battle of Plassey, 1757: Company forces under Robert Clive defeated the Nawab of Bengal, Siraj ud-Daulah, helped by the defection of the Nawab’s commander Mir Jafar, who was installed as Nawab.
Diwani, 1765: after the Battle of Buxar, the Mughal emperor granted the Company the Diwani, the right to collect revenue, of Bengal, Bihar and Orissa.

Revenue instead of trade

With the Diwani, the Company could use Indian revenue to buy Indian goods for export, rather than bringing silver from Britain. Critics said India was paying for its own exports.

The Bengal famine of 1770

A devastating famine struck Bengal in 1770, killing a large share of the population, with some estimates of up to a third. Critics blamed the Company’s harsh revenue collection and failure to provide relief.

Regulation and end

Scandals over corruption and the Company’s finances led the British Parliament to regulate it through Acts in 1773 and 1784. After the Revolt of 1857, the British Crown took over direct rule of India in 1858, ending the Company’s political role.

Economic legacy

Company rule set up new systems of revenue collection, transformed trade patterns and began the long colonial period, whose economic effects historians still debate.

A shift in who pays

Before 1765, the Company brought silver from Europe to pay Indian weavers for cloth. After gaining the Diwani, it used taxes collected from Bengal's farmers to buy that cloth. The goods still went to Europe, but now Indian revenue paid for them.

Thinking the British Crown ruled India from the start

For about a century, a private trading company ruled large parts of India. The Crown took over only in 1858.

Key takeaways

The East India Company was chartered in 1600 as a trading company.
After Plassey in 1757 and the Diwani of 1765, it controlled Bengal's revenue.
Indian revenue was used to buy Indian goods for export.
The Crown took over direct rule in 1858 after the Revolt of 1857.