May 29, 2020
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Seths Underwrote The Company Raj

Not just by shrewd manipulation or by force of superior arms, the East India Company’s empire was erected by the expert harnessing of the strings of an oceanic Indian credit

Seths Underwrote The Company Raj
The Anarchy: The East India Company, Corporate Violence And The Pillage Of An Empire
By William Dalrymple
Published by Bloomsbury Releases on September 10

We still talk about the British conquering India, but that phrase disguises a more sinister reality. For it was not the British government that began seizing chunks of India in the mid-18th century, but a dangerously unregulated private company. The East India Company was headquartered in one small office, five windows wide, in London, and managed in India by a violent, ruthless and intermittently mentally unstable corporate predator—Robert Clive. India’s transition to colonialism, in other words, took place under a for-profit corporation, which existed entirely for the purpose of enriching its investors.

I have spent the last six years since 2013 res­earching this phenomenon, and the result, The Anarchy: the East India Company, Corporate Violence and the Plunder of an Empire has just been published by Bloomsbury. The book does not aim to provide a complete history of the East India Company, still less an economic analysis of its business operations. Instead it is an attempt to answer this central question of how on earth a single business operation, based in one London office complex, managed to rep­lace the mighty Mughal and Maratha Empires as masters of the vast subcontinent between the years 1756 and 1803.

Historians have traditionally proposed many reasons for the astonishing success of the East India Company over its Indian rivals in the sixty years between the Carnatic Wars of the 1740s and the EIC’s capture of Mughal Delhi at the end of the Second Anglo-Maratha War in 1803: the mid-18th century fracturing of India into tiny, competing post-Mughal successor states, and disunity within Indian states, such as the rivalry between the Holkar clan and that of the Scindias, played an important role. Also crucially important was the support that the East India Company enjoyed from the British parliament. The relationship between company and parliament grew steadily more symbiotic throughout the 18th century until eventually it turned into what we might today call a public–private partnership. Returned nabobs like Clive used their wealth to buy both MPs and parliamentary seats. In turn, parliament backed the company with state power: the ships and soldiers that were needed to achieve victory.

The military edge that technological innovations had given European soldiers was the first and most visible sign of the new order. On October 24, 1746, on the estuary of the Adyar river, in the middle of what is now southern Chennai, the eldest son of the Nawab of the Carnatic, Mahfuz Khan, tried to block the passage of 700 newly-recruited French sepoys. These sepoys were the very first Indian troops to be trained up in modern infantry techniques by a European trading company. In just a few minutes, with the help of sustained musketry, their infantry drawn up in ranks, file-firing and using grapeshot and bayonets at close quarters in a way that had never before been seen in India, the 700 sepoys beat off an attack by the over 10,000 Mughal cavalry troopers. The battle of Adyar river proved a turning point in Indian history. Only two French sepoys were killed, while Mughal casualties were over 300. For the first time, techniques of 18th-century European warfare, developed in the Prussia of Frederick the Great, and tested on the battlefields of France and Flanders, had been tried out in India. It was clear that nothing in the Indian arm­oury could match their force. The trained sepoy with his file-firing muskets and hollow squares, and supported by artillery quick-firing grape and canister shot, would be an unstoppable force in Indian warfare for the next century.

The Company shared a symbiotic tie with parliament. Returned nabobs like Clive bought MPs and seats; in turn the Company was backed with state power.

European arms remained technologically more advanced than those of their rivals until the mid-1760s, when both the Marathas and the Sultans of Mysore began to reach military technological parity. It had taken Indian states some twenty years to catch up with foreign innovations in military technology, tactics and discipline that had led to the Company’s early successes; but by 1765 there was growing evidence that that gap was fast being bridged: “The progress that the natives make in the knowledge of the art of war, both in Bengal and on the coast of Coromandel, is becoming a very alarming circumstance,” noted the directors in London that year, urging the Bengal Council to prevent “letting any European officers or soldiers enter into the service of the country government”, and “discourage, as far as in your power, all military improvements among them”.

The anxieties of the directors were shown to be fully justified when, in January 1779, a EIC army from Bombay was surrounded and def­eated by the forces of Mahadji Scindia just outside Pune at the Battle of Talegaon. The following year, on August 26, 1780, Hyder Ali and Tipu Sultan scored an even more remarkable victory over the EIC at the Battle of Pollilur, when William Baillie’s entire division of 3,800 was first surrounded and then wiped out.

Two days after Pollilur, a special vessel was sent off from Madras to Calcutta to tell Fort William of the disaster. The news arrived on September 20. When Warren Hastings heard of the catastrophe, he realised immediately what the defeat meant: “Our armies,” he wrote to London, “which have been so long formed to habits of conquest, will not easily recover from the impression of the dreadful reverse, nor be brought to act with their former confidence under unsuccessful commanders.” Lord Macartney wrote home in a similar vein from Madras: “The Indians have less Terror of our Arms; we less Contempt for their opposition. Our future Advantages therefore are not to be calculated by past exploits.”

Thereafter, European military tactics were less important than the question of resources, and the innovations in governance and taxation which allowed the Company to raise vast sums of ready money at a moment’s notice. For beh­ind the scarlet uniforms and the Palladian palaces, the tiger shoots and the polkas at Government House always lay the balance sheets of the Company’s accountants, with their ledgers laying out profit and loss, and the Company’s fluctuating share price on the London Stock Exchange.

But the often unspoken secret about the success of the East India Company is the support it was given by many Indians, above all the Jain and Marwari bankers who dominated the 18th century Indian economy. For the truth is that the East India Company spoke a language Indian financiers understood, and offered a higher degree of security to Indian capital than its rivals. In the end, it all came down to money. By the end of the century, Bengal was annually yielding to the EIC a steady revenue surplus of Rs 25 million at a time when Mahadji Scindia struggled to net Rs 1.2 million from his territories in Malwa. No wonder that Scindia reflected anxiously that “without money it was impossible to assemble an army or prosecute a war”.

Ultimately, it was the East India Company, not the Marathas or the sultans of Mysore, that the financiers across India decided to back, and it was this, above all, that led to the establishment of the British rule.


As the Mughal Empire grew increasingly anarchic in the years after the death of Aurangzeb, the Mughal governor of Bengal, Murshid Quli Khan, had found innovative ways to get the ann­ual tribute of Bengal to Delhi.

No longer did he send caravans of bullion guarded by battalions of armed men: the roads were now too disordered for that. Instead, he used the credit networks of a family of Marwari Oswal Jain financiers, originally from Nagar in Jodhpur state, to whom in 1722 the Emperor had awarded the title the ‘Jagat Seths’, the ‘Bankers of the World’, as a hereditary distinction.

Controlling the minting, collection and transfer of the revenues of the empire’s richest province from their magnificent Murshidabad palace, the Jagat Seths exercised influence and power that were second only to the governor himself, and they soon came to achieve a reputation akin to that of the Rothschilds in 19th-century Europe. The historian Ghulam Hussain Khan believed that “their wealth was such that there is no mentioning it without seeming to exaggerate and to deal in extravagant fables”. A Bengali poet wrote: “As the Ganges pours its water into the sea by a hundred mouths, so wealth flowed into the treasury of the Seths”.

Siraj’s most serious error was to grievously alienate the fabulously wealthy and powerful Jagat Seths. They bribed Clive to settle the issue at Plassey.

Company commentators were equally dazzled:  the historian Robert Orme, who knew Bengal intimately, described the then Jagat Seth as “the greatest shroff and banker in the known world”. Captain Fenwick, writing on the ‘affairs of Bengal in 1747–48’, referred to Mahtab Rai Jagat Seth as a “favourite of the Nabob and a greater Banker than all in Lombard Street [the banking district of the City of London] joined together”. The Jagat Seths could make or break anyone in Bengal, including the ruler, and their political instincts were usually as sharp as their financial ones. From an early per­iod, East India Company officials realised that the Jagat Seths were their natural allies in the disordered Indian political scene, and that their int­erests in most matters coincided. They also took regular and liberal advantage of the Jagat Seths’ credit facilities: between 1718 and 1730, the East India Company borrowed on average Rs 4,00,000 annually from the firm. In time, the alliance, “based on reciprocity and mutual advantage” of these two financial giants, and the access these Marwari bankers gave the EIC to streams of Indian finance, would radically change the course of Indian history.

In March 1757, after Robert Clive had def­eated the French at Chandernagar, he was preparing to return his troops to Madras when envoys from the Jagat Seths lured him to join a coup d’etat that the bankers were planning to replace the new nawab of Bengal, Siraj ud-Daula. Siraj’s most serious error had been to ali­enate these great bankers of Bengal. The Jagat Seths’ machinations had brought his grandfather Alivardi Khan to power, and anyone who wanted to operate in the region did well to cultivate their favour; but Siraj did the opposite to the two men of the family who were now in charge of the banking house, Mahtab Rai, the current holder of the title Jagat Seth, and Swaroop Chand, his first cousin, who had been accorded the title ‘Maharaja’ by Alivardi Khan.

In the early days of his rule, when he wished to arm and equip a force to take on his cousin in Purnea, Siraj ordered the bankers to provide Rs 30,000,000; when Mahtab Rai said it was imp­ossible, Siraj struck him. According to the historian Ghulam Hussain Khan, “Jagat Seth, the principal citizen of the capital, whom he had often used with slight and derision, and whom he had mortally affronted by sometimes threatening him with circumcision, was in his heart totally alienated and lost [to Siraj’s regime].” It was an easily avoided mistake, and one that he would later come to regret, for it was the Jagat Seths who raised the money to bribe Clive to come north and attack him at the Battle of Plassey. “The Jagat Seths are, I can confirm, the originators of the [Plassey] revolution,” wrote the French commander in Bengal, Jean Law. “Without them the English would never have carried out what they have. The cause of the English had become that of the Seths.”

What was true of the beginning of Company rule in 1757 was still true half a century later in the EIC victory over the Maratha forces in 1803 that finally gave them control over Delhi and the plains of central Hindustan.

The Company’s ever-growing Indian empire could not have been achieved without the political and economic support of regional power groups and local communities. The edifice of the East India Company was sustained by the delicate balance that the Company was able to maintain with merchants and mercenaries, its allied nawabs and rajas, and above all, its tame bankers. It was this access to unlimited res­erves of credit, partly through stable flows of land revenues, and partly through the collaboration of Indian moneylenders and financiers, that in this period finally gave the Company its edge over their Indian rivals. It was no longer superior European military technology, nor powers of administration that made the difference. It was the ability to mobilise and transfer massive financial resources that enabled the Company to put the largest and best-trained army in the eastern world into the field.

The biggest firms of the period—the houses of Lala Kashmiri Mal, Ramchand-Gopalchand Shahu and Gopaldas-Manohardas—many of them based in Patna and Benares, now handled the EIC’s largest military remittances, taking charge of drawing bills of exchange in Bombay or Surat or Mysore, as well as making large cash loans, all of which made possible the regular payment, maintenance, arming and provisioning of the Company’s troops. The Company in turn duly rewarded these invaluable services in 1782, when they announced that the house of Gopaldas would henceforth be the government’s banker in the place of the Jagat Seths. Support from the Company then enabled the house to break into western India from where they had previously been absent.

Wellesley could easily pay for his vastly increased army from an annual revenue surplus of Rs 25 million. Scindia could realise only Rs 1.2 million in Malwa.

As Rajat Kanta Ray has nicely put it, “With regard to the indigenous systems of commercial credit, the Company was better placed than the Indian powers by virtue of its reputation as an international capitalist corporation with a developed sense of the imp­ortance of paying its debts. It was known, moreover, to have the biggest revenue surplus available in the country to offer as collateral for large contract loans obtained from sahukaras [moneylenders].”  The Company was perceived as the natural ally of Indian traders and financiers; the EIC, wrote Hari Charan Das, did not “interfere with the wealth of any rich men, bankers and merchants, and other people who reside in their cities, but on the contrary they are kind to those who are wealthy”.

The Company’s army expanded rapidly under Lord Wellesley since his arrival in 1798. Within a few years its muster roll had gone up by nearly half, from 1,15,000 to 1,55,000 men; in the next decade its numbers would rise again to 1,95,000, making it one of the largest standing European-style armies in the world, and around twice the size of the British army. It had also belatedly recruited an impressive new cavalry arm, mounted on strong European and South African horses. Their job it was to protect the slow-moving and cumbersome inf­antry and artillery columns from flanking att­acks by irregular Indian light horse, as had happened with fatal consequences at Talegaon and Pollilur. This was a form of warfare in which the Marathas were especially skilled.

Unlike the perennially cash-strapped Warren Hastings, Lord Wellesley had no problem paying for this vastly increased military establishment. After the rural upheavals of Cornwallis’s land reforms had settled down, the Company in Bengal found it had a considerable annual revenue surplus of Rs 25 million. In contrast, Scindia was able to realise only Rs 1.2 million from his poorly irrigated home base in Malwa. This dependable surplus in turn allowed the Company easy access to credit from the Bengal money market, so much so that under Wellesley, between 1798 and 1806, the Company’s debt in India more than tripled.

The Company was also able to efficiently red­istribute these financial resources around India. The bankers of Benares and the west coast house of Gopaldas-Manohardas, both of whom were given the protection of the Company’s army, now began to send representatives to travel with it, supplying cash as required both to the troops themselves and their army paymasters. Indeed, bankers from across India began to compete among themselves to supply the Company army with fin­ance. Two Benares banking houses, Mannu Lal and Beniparshad, went as far as asking for assurances that the Company “would honour them with a preference on being permitted to furnish supplies of cash that may be required for the use of the army”.

Ultimately, the East India Company succeeded in war precisely because it had found a way to provide a secure financial base for its powerful mercenary army, and always found it easier than any of its rivals to persuade Indian seths , sahukaras and shroffs quickly to realise the cash needed to pay the army’s salaries and feed its hungry troops. In contrast, as the young Arthur Wellesley noted, “there is not a Maratha in the whole country, from the Peshwa down to lowest horseman, who has a shilling”.

As Burton Stein put it, “The colonial conquest of India was as much bought as fought”, and the finance which enabled that to happen came from India’s own Jain and Marwari bankers. The Company traders and their Indian bankers had always spoken the same language and when they began to work closely together, from the 1750s onwards, the result was the victory of the Company Raj.

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