Science Fair Project Encyclopedia
British East India Company
The British East India Company, sometimes referred to as "John Company", was a joint-stock company of investors, which was granted a Royal Charter by Elizabeth I on December 31, 1600, with the intent to favor trade privileges in India. The Royal Charter effectively gave the newly created British East India Company a monopoly on all trade in the East Indies. The Company transformed from a commercial trading venture to one which virtually ruled India as it acquired auxiliary governmental and military functions, until the Company's dissolution in 1858.
India was referred to as the "Jewel in the Crown" of the British Empire. One of the world's largest diamonds, the Koh-i-Noor, was found in India, and is currently a part of the Crown Jewels of the United Kingdom. More importantly, India was the most valuable country that the British ruled until its independence in 1947.
As Adam Smith wrote, "The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries."
Based in Leadenhall Street, London, the company presided over the creation of British India. In 1717, the Company received a royal dictate from the Mughal 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.
The Company also had interests along the routes to India from Great Britain. As early as 1620, the company attempted to lay claim to the Table Mountain region in South Africa, later it occupied and ruled St Helena. The Company also established Hong Kong and Singapore; employed Captain Kidd to combat piracy; and cultivated the production of tea in India. Other notable events in the Company's history were that it held Napoleon captive on Saint Helena, and made the fortune of Elihu Yale. Its products were the basis of the Boston Tea Party in Colonial America.
The East India Company's flag, with a St. George's Cross in the corner and stripes, probably inspired the Stars and Stripes (as argued by Sir Charles Fawcett in 1937).  Comparisons between the Stars and Stripes and the Company's flag from historical records present some convincing arguments. The John Company flag dates back to the 1600s whereas the United States adopted the Stars and Stripes in 1777.
Its shipyards provided the model for St. Petersburg, elements of its administration survive in the Indian bureaucracy, and its corporate structure was the most successful early example of a joint stock company. However the demands of Company officers on the treasury of Bengal contributed tragically to the province's incapacity in the face of a famine which killed millions in 1770.
The foundation years
The Company was founded as The Governor and Company of Merchants of London Trading into the East Indies by a coterie of enterprising and influential businessmen, who obtained the Crown's charter for exclusive permission to trade in the East Indies for a period of fifteen years. The Company had 125 shareholders, and a capital of £72,000. Initially, however, it made little impression on the Dutch control of the spice trade and at first it could not establish a lasting outpost in the East Indies. Eventually ships belonging to the company arrived in India, docking at Surat, which was established as a trade transit point in 1608. In the next two years, it managed to build its first factory (as the trading posts were known) in the town of Machilipatnam in the Coromandel Coast in the Bay of Bengal. The high profits reported by the Company after landing in India (presumably due to a reduction in overhead costs effected by the transit points), initially prompted King James I to grant subsidiary licenses to other trading companies in Britain. But, in 1609, he renewed the charter given to the Company for an indefinite period, including a clause which specified that the charter would cease to be in force if the trade turned unprofitable for three consecutive years.
Footholds in India
Traders were frequently engaged in hostilities with their Dutch counterparts in the Indian Ocean. 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 (who ruled over nearly 70 percent of the subcontinent). 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 and Jahangir sent a letter to the King through Sir Thomas. He wrote:
- Upon which assurance of your royal love I have given my general command to all the kingdoms and ports of my dominions to receive all the merchants of the English nation as the subjects of my friend; that in what place soever they choose to live, they may have free liberty without any restraint; and at what port soever they shall arrive, that neither Portugal nor any other shall dare to molest their quiet; and in what city soever they shall have residence, I have commanded all my governors and captains to give them freedom answerable to their own desires; to sell, buy, and to transport into their country at their pleasure.
- For confirmation of our love and friendship, I desire your Majesty to command your merchants to bring in their ships of all sorts of rarities and rich goods fit for my palace; and that you be pleased to send me your royal letters by every opportunity, that I may rejoice in your health and prosperous affairs; that our friendship may be interchanged and eternal. 
The company, under such obvious patronage, soon managed to eclipse the Portuguese, who had established their bases in Goa and Bombay (which was later ceded to the British as part of the dowry of Catherine de Braganza). It managed to create strongholds in Surat (where a factory was built in 1612), Madras (1639), Bombay (1668) and Calcutta. By 1647, the Company had 23 factories and 90 employees in India. The major factories became the walled forts of Fort William in Bengal, Fort St George in Madras and the Bombay Castle . 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, saltpeter and tea. All the while it was making inroads into the Dutch monopoly of the spice trade in the Malaccan straits. In 1711, the Company established a trading post in Canton (Guangzhou), China, to trade tea for silver. In 1657, Oliver Cromwell renewed the charter of 1609, and brought about minor changes in the holding of the Company. The status of the Company was further enhanced by the restoration of monarchy in Britain. By a series of five acts around 1670, King Charles II provisioned it with the rights to autonomous territorial acquisitions, to mint money, to command fortresses and troops and form alliances, to make war and peace, and to exercise both civil and criminal jurisdiction over the acquired areas. The Company, surrounded by trading competitors, other imperial powers, and sometimes hostile native rulers, experienced a growing need for protection. The freedom to manage its military affairs thus came as a welcome boon and the Company rapidly raised its own armed forces in the 1680s, mainly drawn from the indigenous local population. 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 road to a complete monopoly
The prosperity that the employees of the company enjoyed allowed them to return to their country and establish sprawling estates and businesses and obtain political power. Consequently, the Company developed for itself a lobby in the British parliament. However, under pressure from ambitious tradesmen and former associates of the Company (pejoratively termed Interlopers by the Company), who wanted to establish private trading firms in India, a deregulating act was passed in 1694. This act allowed any British firm to trade with India, unless specifically prohibited by act of parliament, thereby annulling the charter that was in vogue for almost 100 years. By an act in 1698, a new "parallel" East India Company (officially titled the English Company Trading to the East Indies) was floated under a state-backed indemnity of £2 million. However, the powerful stockholders of the old company quickly subscribed a sum of £315,000 in the new concern, and dominated the new body. The two companies wrestled with each other for some time, both in England and in India, for a dominant share of the trade. But it quickly became evident, that in practice, the original Company scarcely faced any measurable competition. Both companies finally merged in 1702, by a tripartite indenture involving the state and the two companies. Under this arrangement, the merged company lent to the Treasury a sum of £3,200,000, in return for exclusive privileges for the next three years—after which the situation was to be reviewed. The amalgamated company became the United Company of Merchants of England Trading to the East Indies.
What followed in the next decades 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 relinquish the opportunity to exploit the Company's profits by allowing it a greater autonomy. 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, which reasserted the influence of the Company lobby. The license was prolonged until 1766 by yet another act in 1730.
At this time, Britain and France became bitter rivals, and there were frequent skirmishes between them for control of colonial possessions. In 1742, fearing the monetary consequences of a war, the government agreed to extend the deadline for the licensed exclusive trade by the Company in India till 1783, in return for a further loan of £1 million. The skirmishes did escalate to the feared war, and between 1754 and 1763 the Seven Years' War diverted the state's attention towards consolidation and defence of its territorial possessions in Europe and its colonies in North America. The war also took place on Indian soil, between the Company troops and the French forces. 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 spiralling 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.
The war resulted in the defeat of the French forces and limited French imperial ambitions, also stunting the influence of the industrial revolution in French territories. Robert Clive, the Governor General, led the Company to an astounding victory against Joseph François Dupleix, the commander of the forces in India, and recaptured Fort St George from the French. By the Treaty of Paris (1763), the French were forced to maintain their trade posts in small enclaves in Pondicherry, Mahe, Karikal, Yanam, and Chandernagar without any military presence. Although these small outposts remained French possessions for the next two hundred years, French ambitions on Indian territories were effectively laid to rest, thus eliminating a major source of economic competition for the Company. Contrastingly, the Company, fresh from a colossal victory, and with the backing of a disciplined and experienced army, was able to assert its interests in the Carnatic from its base at Madras and in Bengal from Calcutta, without facing any further obstacles from other colonial powers.
However, the Company continued to experience resistance from local rulers. Robert Clive led company forces against French-backed Siraj Ud Daulah to victory at the Battle of Plassey in 1757, thereby snuffing out the last known resistances in Bengal. This victory estranged the British and the Mughals, who had been served by Siraj as an autonomous ruler. But the Mughal empire was already on the wane after the demise of Aurangazeb, and was breaking up into pieces and enclaves. After the Battle of Buxar , Shah Alam, the ruling emperor, gave up the administrative rights over Bengal, Bihar, and Orissa. Clive thus became the first British Governor of Bengal. Haider Ali and Tipu Sultan, the legendary rulers of Mysore (in Carnatic), also gave a tough time to the British forces. Having sided with the French during the war, the rulers of Mysore continued their struggle against the Company with the four wars of Mysore. Mysore finally fell to the Company forces in 1799, with the slaying of Tipu. With the gradual weakening of the Maratha empire in the aftermath of the three Anglo-Maratha wars, the British also secured Bombay and the surrounding areas. It was during these campaigns that Arthur Wellesley, later Duke of Wellington, first showed the abilities which would lead to victory in the Peninsular War and at the Battle of Waterloo. A particularly notable engagement involving forces under his command was the Battle of Assaye. Thus, the British had secured the entire region of Southern India (with the exception of small enclaves of French and local rulers), Western India and Eastern India. The last vestiges of local administration were restricted to the northern regions of Delhi, Oudh, Rajputana, and Punjab, where the Company's presence was ever increasing amidst the infighting and dubious offers of protection against each other. Coercive action, threats and diplomacy aided the Company in preventing the local rulers from putting up a united struggle against it. The hundred years from the Battle of Plassey in 1757 to the Sepoy Mutiny of 1857 were a period of consolidation for the Company, which began to function more as a nation and less as a trading concern.
Regulation of the company's affairs
Though the Company was becoming increasingly bold and ambitious in putting down resisting states, it was getting clearer day by day that the Company was incapable of governing the vast expanse of the captured territories. The Bengal famine , in which one-sixth of the local population died, set the alarm bells ringing back home, and prompted Adam Smith's quotation at the beginning of this article. Military and administrative costs mounted beyond control in British administered regions in Bengal due to the ensuing drop in labour productivity. At the same time, there was commercial stagnation and trade depression throughout Europe following the lull in the post-Industrial Revolution period. Britain became entangled in the rebellion in America (one of the major importers of Indian tea), and France was on the brink of a revolution. The desperate directors of the company attempted to avert bankruptcy by appealing to Parliament for financial help. This led to the passing of the Tea Act in 1773. This Act gave the Company greater autonomy in running its trade in America. Its monopolistic activities triggered the Boston Tea Party in the Province of Massachusetts Bay, one of the major events leading up to the American War for Independence.
Regulating Act of 1773
After the U.S. gained independence from Britain, the imperial focus shifted across the globe to India. The Eastern British armies in Britain swelled, as did those of the East India Company, bringing up further operational costs. The Company was brought under the Regulating Act for India in 1773, which imposed a series of administrative and economic reforms. Despite stiff resistance from the East India lobby in parliament, and from the Company's shareholders, the Act was passed. It introduced substantial governmental control, and allowed the land to be formally under the control of the Crown, but leased to the Company at £40,000 for two years. Under this provision, the governor of Bengal Warren Hastings was promoted to the rank of Governor General, having administrative powers over all of British India. It provided that his nomination, though made by a court of directors, should in future be subject to the approval of a Council of Four appointed by the Crown. He was entrusted with the power of peace and war. British judicial personnel would also be sent to India to administer the British legal system. The Governor General and the council would have complete legislative powers. Thus Warren Hastings became the first Governor-General of India. The company was allowed to maintain its virtual monopoly over trade, in exchange for the biennial sum and an obligation to export a minimum quantity of goods yearly to Britain. The costs of administration were also to be met by the company. These provisions, initially welcomed by the Company, backfired. The Company had an annual burden on its back, and its finances continued steadily to decline.
Decline of the company
In the meantime, Hastings fell out of favour with the Council of Four, who returned to Britain and brought corruption proceedings against him that led to his impeachment. The Regulating Act was deemed a failure because it was immediately apparent that the boundaries between governmental control and the Company's powers were obscure and highly subject to interpretation. The government also felt obliged to answer humanitarian voices pleading for better treatment of natives in British occupied territories. Edmund Burke, a former East India Company shareholder and diplomat, felt compelled to relieve the situation and introduced the India Bill in 1783. The Bill was defeated due to intense lobbying by Company loyalists and accusations of nepotism in the Bill's recommendations for the appointment of councillors. Nevertheless, the Bill was an important step in the subduing of the Company, and the 1784 India Act settled matters amicably. It divided the control of governance and trade, with clearly demarcated borders between the Crown and the Company. After this point, the Company functioned as a regularised subsidiary of the Crown, with greater answerability for its actions and reached a stable stage of expansion and consolidation. Having temporarily achieved a state of truce with the Crown, the Company continued to expand its influence to nearby territories through threats and coercive actions. By the middle of the 19th century, the Company's rule extended across most of India, Burma, Singapore and Hong Kong, and a fifth of the world's population was under its authority.
Meanwhile, British influence continued to expand; in 1845 the Danish colony of Tranquebar was sold to Great Britain. The Company had at various stages extended its influence to China, the Philippines, and Java. It had solved its critical lack of the cash needed to buy tea by exporting Indian-grown opium to China. China's efforts to end the trade led to the First Opium War with Britain.
The efforts of the company in administering India emerged as a model for the civil service system in Britain, especially during the 19th century. Deprived of its trade monopoly in 1813, the company wound up as a trading enterprise. In 1858 the Company lost its administrative functions to the British government following the Sepoy Mutiny of the preceding year, and India became a formal crown colony. In the early 1860s all of the Company's Indian possessions were appropriated by the Crown. The Company was still managing the tea trade on behalf of the British government (especially to Saint Helena). When the East India Stock Dividend Redemption Act came into effect, the Company was dissolved on January 1, 1874. The Times reported, "It accomplished a work such as in the whole history of the human race no other company ever attempted and as such is ever likely to attempt in the years to come."
- Library of Congress Federal Research Division Country Studies
- History and Politics: East India Company
- English Expansionism
- Colonial Empires: Course lecture
- Dutch East India Company, founded 1602
- London Virginia Company, founded 1606
- Hudson's Bay Company, founded 1670
- Dutch West India Company, founded 1621
- French East India Company, founded 1664
- Swedish East India Company, founded 1731
- East India Company College
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