The East India Company: From Traders to Rulers

When the English East India Company (EIC) was founded in 1600, its ambition was purely commercial — to profit from the lucrative Eastern trade, especially in spices, textiles, and other exotic goods. The Company established its first factory at Surat in 1612, and over the next century and a half, it gradually spread along India’s coasts, setting up trading posts (“factories”) in different regions.

By the mid-18th century, three major Presidency towns — Madras, Bombay, and Calcutta — had emerged as administrative centres, each governed by a Governor under the Company’s authority.

At the top of this corporate empire sat the Court of Directors in London — the executive body elected by the Court of Proprietors (shareholders). These directors, thousands of miles away, were responsible for recruiting officials and controlling administration in India.

Relationship Between EIC and the British Government

Originally, the EIC was just a trading monopoly, keeping other British merchants out of Eastern markets. But things changed dramatically after 1765, when the Company gained political power in India (notably after getting the Diwani of Bengal).

Now, the EIC was not just a trading body — it was sovereign over millions of Indians. This created serious questions in Britain:

1. Who actually “owned” the Indian territories — the Company or the British Crown?
2. How could London control officials operating so far away in India?

Criticism of the Company

Many sections of British society turned against the EIC, each for different reasons:

1. Merchants & Manufacturers – They wanted a slice of the profitable Indian trade and hated the Company’s monopoly. They also attacked the Company’s misrule in Bengal as a way to break its grip.
2. Ministers & Members of Parliament – They saw political opportunity. If the Company paid tribute to the British government, India’s revenue could be used to reduce taxes and public debt in England. In 1767, Parliament forced the Company to pay £400,000 annually to the British Treasury.
3. Political Thinkers & Statesmen – They feared that an uncontrolled EIC could become so powerful that it might dominate British politics itself and undermine the liberties of British citizens.
4. New School of Economists – Inspired by thinkers like Adam Smith, they argued in favour of free trade and against exclusive trading companies. In The Wealth of Nations, Smith criticised such monopolies as harmful both to the parent country and the territories they controlled.
   
   

Company Rule Fails (1765–1772)

From 1765 to 1772, the EIC’s governance was disastrous. Its officials grew personally wealthy, but the Company as an institution fell into financial crisis. By 1772, it was so deep in trouble that it had to request a £1,000,000 loan from the British Government.

This was Parliament’s chance to intervene and assert control over the Company’s political activities. But there was a catch — the EIC had King George III as its patron, and it resisted strongly.

The Compromise

After political bargaining, a middle path was agreed:

• British Government’s Role:
  • Would control basic policies of Indian administration to ensure that British rule served British upper-class interests.
• Company’s Rights Retained:
  • Monopoly over Eastern trade.
  • The right to appoint its officials in India.
  • The Court of Directors would continue to manage day-to-day Indian administration.

The Regulating Act of 1773

This was Parliament’s first direct step to control the Company’s administration.

• It restructured the Company’s constitution in Britain.
• Brought all its Indian territories under a degree of Parliamentary supervision.

Meanwhile, in British society, those locked out of Indian trade continued to attack Company officials, accusing them of oppressing Indians and becoming obscenely rich. These officials were mockingly called “nabobs” (a corruption of nawab).

Two major targets of such criticism were Robert Clive and Warren Hastings.