History of India - Trade to Colonization

The East India Company was granted an English Royal Charter by Elizabeth I on December 31, 1600, with the intention of favoring trade privileges in India. The Royal Charter effectively gave the company a 21 year monopoly on all trade in the East Indies. The Company transformed from a commercial trading venture to one that virtually ruled India as it acquired auxiliary governmental and military functions, until its dissolution in 1858.

Based in London, the company presided over the creation of the British Raj. In 1617, the Company was given trade rights by the Mughal Emperor. 100 years later, it was granted a royal dictate from the Emperor exempting the Company from the payment of custom duties in Bengal, giving it a decided commercial advantage in the Indian trade. A decisive victory by Sir Robert Clive at the Battle of Plassey in 1757 established the British East India Company as a military as well as a commercial power. By 1760, the French were driven out of India, with the exception of a few trading posts on the coast, such as Pondicherry. In south east Asia, the company would establish the first trading posts and exert its military dominance leading to the eventual establishment of British Malaya, Hong Kong and Singapore as British Crown Colonies.

Initially, the British traders had come to India with hopes of selling Britain's most popular export item to Continental Europe (British Broadcloth), but were disappointed to find little demand for it. Instead, like their Portuguese counterparts, they found several Indian-made items they could sell quite profitably in their homeland. Competing with other European traders, and competing with several other trade routes to Europe (the Red Sea route through Egypt, the Persian Gulf Route through Iraq, and the Northern Caravan Route through Afghanistan, Persia and Turkey), the early British Traders were in no position to dictate terms.

Considering the long route (around the African Cape) that the British had to take in reaching England, it was surprising that they made as much money as they did. But other factors outweighed this disadvantage. First, owing to their legally sanctioned monopoly status in England, they had substantial control on the British market. Second, by buying directly at the source, they were able to eliminate the considerable mark-up that Indian goods enjoyed en-route to Europe. Thirdly, the East India Company probably enjoyed better economies of scale since their ships were amongst the largest in the Indian Ocean. In addition, they were able to develop new markets for Indian goods in Africa, and in the Americas.

The Company traders were frequently engaged in hostilities with their Dutch and Portuguese counterparts in the Indian Ocean. A key event providing the Company with the favor of Mughal emperor Jahangir was their victory over the Portuguese in the Battle of Swally in 1612. Perhaps realizing the futility of waging trade wars in remote seas, the English decided to explore their options for gaining a foothold in mainland India, with official sanction of both countries, and requested the Crown to launch a diplomatic mission. In 1615, Sir Thomas Roe was instructed by James I to visit the Mughal emperor Jahangir. The purpose of this mission was to arrange for a commercial treaty which would give the Company exclusive rights to reside and build factories in Surat and other areas. In return, the Company offered to provide to the emperor goods and rarities from the European market. This mission was highly successful.

The company with patronage from Mugal Emperor soon managed to eclipse the Portuguese Estado da India, which had established bases in Goa, Chittagong and Bombay. It managed to create strongholds in Surat (1612), Madras (1639), Bombay (1668) and Calcutta (1690). By 1647, the Company had 23 factories, each under the command of a master merchant, and 90 employees in India. In 1634, the Mughal emperor extended his hospitality to the English traders to the region of Bengal and in 1717 completely waived customs duties for the trade. The company's mainstay businesses were by now in cotton, silk, indigo dye, saltpeter and tea. By 1689, the Company was arguably a "nation" in the Indian mainland, independently administering the vast presidencies of Bengal, Madras and Bombay and possessing a formidable and intimidating military strength.

The prosperity that the employees of the company enjoyed allowed them to return to their country and establish sprawling estates and businesses, and to obtain political power. Consequently, the Company developed for itself a lobby in the English parliament. There was a constant see-saw battle between the Company lobby and the parliament. The Company sought a permanent establishment, while the Parliament would not willingly allow it greater autonomy, and so relinquish the opportunity to exploit the Company's profits. In 1712, another act renewed the status of the Company, though the debts were repaid. By 1720, 15% of British imports were from India, almost all passing through the Company.

At this time, Britain and France became bitter rivals, and there were frequent skirmishes between them for control of colonial possessions. The Seven Years' War (1756 – 1763) resulted in the defeat of the French forces and limited French imperial ambitions and the French were forced to maintain their trade posts only in small enclaves in Pondicherry, Mahe, Karikal, Yanam, and Chandernagar without any military presence. Around the same time, Britain surged ahead of its European rivals with the advent of the Industrial Revolution. Demand for Indian commodities was boosted by the need to sustain the troops and the economy during the war, and by the increased availability of raw materials and efficient methods of production. As home to the revolution, Britain experienced higher standards of living, and this spiraling cycle of prosperity, demand and production had a profound influence on overseas trade. The Company became the single largest player in the British global market, and reserved for itself an unassailable position in the decision-making process of the Government.

By the middle of the 17th century, the East India Company was re-exporting Indian goods to Europe and North Africa and even Turkey. This was to have a severely deleterious effect on the Ottomans, the Persians, the Afghans, since much of the revenues of these states came from the India trade. It also seriously impacted the revenues of the Mughals, and while the activities of the Arab and Gujarati traders were not entirely eliminated, their trade was much curtailed, and largely reduced to the inter-Asian trade which continued unabated. In any case, the Mughal state was unable to resist centrifugal forces and rapidly disintegrated. This left the East India Company with considerably more leverage and emboldened it to expand its activities, and demand even greater concessions from Indian rulers.

The battle of Plassey was to be only the first of several assaults that no regional Indian power was able to fend off successfully. The conquest of India continued with conclusive defeats of the Marathas in 1818, the Sikhs in 1848 and the annexation of Awadh in 1856. 1857 was a brave attempt to rollback the victories of the East India Company, but instead it now brought on the might of the entire British imperial government. The Indian colonies of the British East India Company became British Colonial India and so began a new phase of colonial plunder from the sub-continent. A phase that saw constant challenges to British hegemony in the region but it was not till Mohandas Gandhi enters the scene.

There was a systematic transfer of wealth from India to Europe for almost 200 years. Although Britain may have been the primary beneficiary, its allies in Europe and the new world benefited no less. British Banks used their Indian capital to fund industry in the US, Germany and elsewhere in Europe. The industrial revolution and the development of modern capitalism were based on the colonization of India and the rest of the world. It was the forced pauperization of the colonized world that allowed nations such as Britain, or the US to industrialize and modernize.