Honourable Company: A History of The English East India Company

by John Keay

  A similar ambiguity underlies Clive’s other reforms. His solution to the problem arising from the misuse of dastak (customs exemption) was to make the commodities of inland trade a Company monopoly administered by, and paying dividends to, the senior Bengal servants. He reasoned that they could not survive on their Company salaries and must be given some compensation for surrendering such a lucrative activity as private trade. In fact the scheme antagonized both the directors, who were totally opposed to any interference in inland trade, the junior Company servants, who were excluded from it, the native traders, who suffered as much as ever, and the native consumers, who found the price of essentials rising rapidly. Only the lucky subscribers benefited. For no risk and no effort they received about £200,000 per annum, Clive’s share being over £21,000.

  The Nawab, of course, received nothing. Clive would insist that all possible respect be paid to his office but in reality his government was now just the Company in Bengal’s letterhead. If Clive and his successors had to manage without presents it was as much thanks to Murshidabad’s empty coffers and the fact that the Nawab was now a pensioner of the Company as to any Company covenants against the practice. Under the terms of an agreement reached with Mir Kasim’s erstwhile allies – Shah Alam II and Shuja-ud-Daula – Oudh had been returned to the latter on condition of the payment of an indemnity to the Company and on condition of the cession of two large districts to Shah Alam. The Emperor in turn, having first been perilously seated on a throne constructed from a suitably draped armchair perched on top of Clive’s dining table, had ceremoniously conferred on the Company the diwani of Bengal, an event which has been variously hailed as ‘the great act of the constitutional entrance of the Company into the body politic of India’ (Edmund Burke), ‘the formal beginning of the British Raj’ (V. T. Harlow), and ‘the first British experiment in “indirect rule”’ (H. H. Dodwell).

  Originally an office distinct from that of nawab and equally influential, the diwani entailed the management of a province’s revenue and the remission of part of it to the imperial treasury. In the past Bengal’s Nawabs had usually secured the appointment of their own diwans and had thus suborned the independence of the office. But since Moghul government amounted to little more than revenue management, it followed that a decree resurrecting this office and awarding it to the Company virtually extinguished the pretensions of Murshidabad. It is true that under Clive’s so-called Dual System, the assessment and collection of the revenue would be left to the existing network of venal officials and grasping tax farmers. But before reaching the Nawab’s treasury, the flow of rupees would now be diverted to the Company who became responsible both for maximizing and distributing the receipts. These, like the sums that were supposed to have accrued under the terms of his treaty with Mir Jafar, Clive grossly overestimated. After the deduction of all costs and expenses he foresaw an annual surplus of nearly £2 million, enough to meet the cost of trade purchases, the expenses of all the Company’s other settlements, and still leave substantial profits. It was sweet music to the ears of the directors, sweeter still to those of anyone who had had the foresight to invest their all – and whatever could be borrowed in their name besides – in Company stock.

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  News of Clive’s intention to assume the diwani reached London in April 1766. There it had two important repercussions. First the Company’s stock, a normally unexciting performer on the financial markets, suddenly began to climb. It added eight points, about five per cent, in a single day and it went on climbing, nearly doubling in value over the next eight months. Clive’s friends, acting on those secret instructions from Madras, bought heavily; but as word of his optimistic calculations of the Bengal surplus leaked out, outside investors also leapt on the bandwagon. On the Amsterdam and Paris markets the bubble went on growing and as the wilder speculators moved in, the greater became the pressure to keep the bubble from bursting.

  An obvious way of preventing such a catastrophe was by boosting confidence still further with a hefty increase in the annual dividend. If Clive was right about that £2 million annual surplus, the Company could well afford such a gesture; even if it could not, Clive’s innovation of ‘splitting’ stock to create votes could be used to force it to co-operate. Accordingly, in September 1766, the General Court of Proprietors moved for an increase from six to ten per cent. The directors, still dominated by Clive’s allies, did not support the motion; but neither did they organize the necessary ‘splitting’ to defeat it, thus in effect allowing it to pass. As a result, stock values continued to climb.

  While the City of London was thus in turmoil, across town in Westminster the diwani was having equally alarming results. In June 1766 Lord Chatham (the elder Pitt) formed his last precarious ministry. Echoing the words first used by Clive in his letter of 1759 (suggesting that ‘so large a sovereignty’ could and should be exploited by the nation) Chatham saw the diwani revenues as what he called ‘a kind of gift from heaven’ sent to offset the debt accrued during the Seven Years War and so secure ‘the redemption of a nation’. Playing on that old resentment against the Company’s monopoly, on the growing unease about its management of its Indian territories, and on the jealousies being aroused by the nouveau riche ‘Nabobs’ of the Bengal Squad, the Ministry scented a popular cause.

  But how to wrest this providential windfall from the Company posed serious problems. Chatham seems to have favoured a direct assault in Parliament on the Company’s right to hold territory. The threat of such a heavy-handed approach had a salutary effect on Leadenhall Street but it failed to win the support of his divided Ministry. If chartered rights were to be infringed, it was a near certainty that other chartered bodies, amongst them the City of London itself, would protest. And if the office as well as the income of the diwani was to be claimed by the state, all sorts of constitutional problems would arise, not least that of George III becoming a feudatory of the Moghul.

  On the whole, therefore, the Ministry preferred the softer approach of negotiating with the various interests within the Company. As Chatham slipped towards a dithering senility, negotiations were handled by the more amenable Earl of Shelburne; but with both the Ministry and the parliamentary Opposition as faction-ridden as the Company, these proved complex and protracted. In unlikely alliance with a section of the speculative investors and a group of disgruntled ‘Nabobs’ who had fallen foul of Clive (and which included Johnstone’s extensive kin), Lawrence Sulivan staged a gradual recovery. Clive’s supporters, in return for not opposing the Ministry’s demands, eventually secured an extension for a further ten years of the jagir, Johnstone was reinstated, and the Company’s chartered rights were confirmed, albeit on a temporary basis. In return, the Ministry secured as much as it had ever hoped for, namely a guaranteed annual payment from the Company of £400,000 per year. Additionally and almost incidentally it had secured the passage of two bills, one designed to prevent ‘splitting’, the other to prevent the Company from raising its dividend (which had now gone up to twelve and a half per cent) without Government sanction. Neither of these measures proved particularly effective but they established a highly significant precedent for parliamentary interference in the internal affairs of the Company.

  Less obvious but equally ominous was the continued process of infiltration whereby, on the one hand, ministerial influence saturated the Court of Directors while, on the other, Indian wealth buoyed up the Court of Proprietors. As yet the final battle lines were far from clear. Sulivan was still in the wilderness; Clive, who returned from India in 1767, still dominated the Directorate. But, because the compromise just reached was to last only two years, the Ministry, with an eye to the next round of negotiations, continued to pursue connections within the Court of Directors. It was thus, for instance, as a Government ally, that Commodore Sir William James, the hero of Suvarnadrug, was elected a director in 1768.

  Meanwhile, with every returning Indiaman, there came new recruits for the Bengal Squad and new money for voting sha
res in the Court of Proprietors. As the Bengal Nabobs squeezed up to make room for their colleagues, adjacent benches filled with Madras Nabobs, equally affluent and equally anxious to protect the sources of their affluence. Such was their combined voting strength that Burke would one day observe that instead of the directors appointing their servants, the servants were now appointing their directors. ‘The seat of supreme power is in Calcutta [as opposed to Leadenhall Street]’, he declared, failing to add that it was also in Whitehall. Henceforth it was virtually impossible to secure election as a director without the support either of the Ministry or of a large section of the Nabobs. And inevitably such support imposed reciprocal obligations once the candidate was safely installed round the horseshoe table.

  In the event the renewed negotiations in 1769 did little more than prolong the 1767 compromise for a further five years. The Company was to continue to pay the state £400,000 per year; additionally it accepted a stipulation, of some future significance, to boost its export of English manufactures. But more pressing matters were again postponed. One consisted of a proposed trade-off whereby the still unsettled expenses incurred by the Company during the Manila expedition should be offset by a reduction in the excessive duties charged by the Treasury on tea imports from China. Another sought statutory backing to enforce the Court of Directors’ control over their Indian servants. Both proposals came from the Company. The first, had it been acted on, could well have averted the financial crises that were about to engulf Leadenhall Street; and the second must have ameliorated the political scandals that were again looming in India. But both were rejected by a supine Ministry.

  There followed in the Court of Proprietors ‘one of the most fiercely contested elections of the century’ (Sutherland) from which Sulivan was at last returned to the Court of Directors. The price was high. To secure this result Sulivan, Vansittart, and their allies had mobilized and ‘split’ stock on an unprecedented scale. Because of the recent legislation, this stock was still in their names when, a month later, news from India sent stock values plummeting. Triumphant in April, Sulivan was practically bankrupt in May. So was Vansittart whose only hope of redeeming his fortune lay in a return to India. Such an opportunity arose almost immediately; sadly he took it, never to be heard of again.

  The news which had prompted the financial panic came not, for once, from Bengal, but from Madras and Mauritius. The former appeared to be under threat from a rampaging Hyder Ali who had just usurped the throne of Mysore and, under the sort of local British provocation which Leadenhall Street was so anxious to curtail, had turned on the Company. Meanwhile Mauritius, a place of sinister repute ever since the days of La Bourdonnais, appeared to be hosting another build-up of France’s Indian Ocean navy. Time would show that as yet neither of these scares need have been taken so seriously. But this was no consolation to the impoverished and chastened Sulivan who, under Ministerial pressure, at last came to terms with Clive. Nor was the all-clear sounded soon enough to prevent the dispatch of three Supervisors, two of them Clive’s nominees, one (Vansittart) Sulivan’s, with extensive powers to purge the Company’s ranks, reorganize its revenue administration, and conduct its external relations in a less provocative manner.

  The Supervisors sailed on the frigate Aurora in October 1769. In spite of past failures dating back to the unfortunate experiences of Sir William Hedges at the hands of Job Charnock, Leadenhall Street retained a touching faith in such plenipotentiary commissions and great were the expectations of the new Supervisors. They carried instructions to tackle the debts accumulated by Mohammed Ali which lay at the root of all Madras’s problems, they had the authority to revise the now evident failings of Clive’s Dual System, and they combined the sympathies and acumen necessary to confront the great natural catastrophe that was about to overtake Bengal. Making good speed, the Aurora called at the Cape just before Christmas. Thereafter she was never sighted again. Besides the Supervisors, her complement included two Scots whose very different claims to celebrity seemed to offer contrasting explanations for the mystery. Thus hopes for the Aurora hinged on Midshipman Robert Pitcairn who had already given his name to one desert island. Probability, though, pointed to Purser William Falconer who was also a poet, his best-known composition being a vivid three-part elegy ominously entitled The Shipwreck.

  Back in London 1770 and 1771 passed in comparative harmony as first news of the Supervisors’ transactions was awaited. Lord North’s administration succeeded that of Chatham-Grafton; Sulivan was removed from the Directorate and then returned to it; a bust of Clive wrapped in a toga was erected in the main hall of ‘India House’. When the loss of the Aurora became an accepted fact the directors did what was probably the next best thing and appointed Warren Hastings, then in Madras, to the governorship of Bengal. Hastings was encouraged ‘to stand forth’ as diwan by jettisoning Clive’s ‘hands-off’ Dual System and directly involving the Company in supervising the assessment and collection of the revenue. This was a big step towards transforming the Company into an administrative service and it was taken on the Company’s own initiative. Simultaneously Sulivan in London drafted two proposals designed to strengthen the Company’s authority over its servants in India. Both required statutory power and, as before, both were frustrated by a combination of indifference on the part of the Ministry and opposition from the Bengal Squad. But at least they showed that within the Company there existed an influential element who appreciated that reform was not incompatible with resistance to state intervention. Indeed, though it required a degree of state endorsement, reform was seen by Sulivan as the best defence against state intervention.

  Public opinion, such as it was in the eighteenth century, failed to appreciate these niceties. Dimly aware that the British nation had somehow acquired by proxy a remote but exotic slice of south Asia, it was becoming all too familiar with the catalogue of misdemeanours and oppressions that were evidently jeopardizing this exciting development. Grisly tales of peculation and skulduggery flowed from the pens, ‘dipped in the ink of infamy’, of Alexander Dow, born in Benkulen but who had served in the Bengal army, and of William Bolts, one of Johnstone’s less reputable partners. Both men had fallen foul of Clive. At him they therefore directed their jibes, thus neatly deflecting any attack on the Nabobs as a whole. Consequently, when Sulivan attempted to obtain parliamentary sanction for his reforms, the debate degenerated into a slanging match between Clive and the cohorts loyal to Johnstone. With the kettle publicly blackening the pots and the pots publicly blackening the kettle, it was hardly surprising that a motion to set up a Select Committee for investigating ‘the most atrocious abuses that ever stained the name of civil government’ received general applause.

  To this Select Committee of the House, a Secret Committee was added before the end of 1772. The first was to review past abuses; the second was to pave the way for immediate legislation. For yet another crisis in the Company’s affairs had blown up, this time in the shape of imminent bankruptcy. The economic fall-out threatened to engulf the nation. Parliament was sitting in emergency session. Any chance of the Company being allowed to set its own house in order had passed for good.

  The new crisis stemmed from financial irresponsibility at home highlighted and exacerbated by a major disaster in India. For more than a year rumours of one of the ghastliest famines ever to afflict Bengal had been fuelling the flames of indignation against the Company and its extortionate servants. The calamity, begun with the failure of the 1769 monsoon, raged throughout 1770. No official report was ever published but a century later Sir William Hunter compiled a well-authenticated summary from the official records.

  All through the stifling summer of 1770 the people went on dying. The husbandmen sold their cattle; they sold their implements of agriculture; they devoured their seed-grain; they sold their sons and daughters, till at length no buyer of children could be found; they ate the leaves of the trees and the grass of the field; and in June 1770 the [British] Resident at the Darbar [of M
urshidabad] affirmed that the living were feeding on the dead. Day and night a torrent of famished and disease-ridden wretches poured into the great cities…The streets were blocked up with promiscuous heaps of the dying and dead.

  Estimates of the mortality varied between a third and a half of the entire population of Lower Bengal. The resultant decline in the province’s prosperity was identified by Hunter as ‘the key to the history of Bengal during the succeeding forty years’.

  Although the Company’s servants could hardly be blamed for a natural disaster, the revenue assessment was in fact increased by ten per cent during the height of the famine and there were several accusations of British collusion in the inevitable hoarding and profiteering. No relief measures of any significance were undertaken and Clive’s decision to make the inland trade a monopoly of the Company’s servants appeared, probably unfairly, to have exacerbated matters. Worse was the contrasting opulence of the Nabobs which now appeared in a positively obscene light. All this was fuel for the Select Committee but it was the famine’s effect on the Company’s finances which precipitated the real crisis.

  Ever since Clive had assumed the diwani the Company had been living on credit. Military and administrative expenses had continued to escalate, the revenue surplus had never approached the £2 million per annum envisaged, and those repeatedly increased dividends plus the £400,000 per annum to the state had compounded the problem. A doubling in the value of the Company’s Indian trade had to some extent disguised the situation but, to finance this investment, heavy debts had been incurred in India and more bills of exchange had been made available to returning Nabobs. These also served to delay an appreciation of the financial effects of the famine. In fact it had cut deep into the revenue receipts and dramatically reversed the trade expansion. The scale of the problem became apparent in the summer of 1772 when, amid a general credit crisis, the Company found itself liable for over £1.5 million in bills of exchange alone. Even its considerable stocks of tea, written down in value as a result of the glut of cheaper contraband tea, could not meet such liabilities.