Latest / The Rise of Colonialism: How Europe Divided the World — Fexingo History / The Diwani Grant and the Birth of British Taxation in India
Transcript
- Lucas: So we've talked a lot about Plassey and Buxar, those big military victories that gave the East India Company control over Bengal. But there's one document that really sealed the deal—the Treaty of Allahabad in 1765. It's what gave the Company the diwani, the right to collect taxes in Bengal, Bihar, and Orissa. Luna: So the Company went from being a trader to being the taxman? Lucas: Exactly. And it's a huge shift. Before this, the Company was mostly about buying and selling—textiles, spices, saltpeter. But the diwani made them the de facto revenue authority for one of the richest regions in India. They didn't have to govern directly—they left that to the Nawab—but they controlled the money. Lucas: The architect of this was Robert Clive, who had just returned to India after his victory at Plassey. He negotiated with the Mughal emperor Shah Alam II, who was essentially a puppet at that point, and with the Nawab of Bengal, najm ud daula. The treaty gave the Company the diwani and gave the Nawab a fixed annual allowance—twenty-six lakh rupees a year, which was a lot, but nowhere near what the Company collected. Luna: What did Shah Alam get out of it? Lucas: He got the districts of Kora and Allahabad, which the Company had conquered from shuja ud daula, the Nawab of Awadh. And he got an annual tribute of twenty-six lakh rupees from Bengal. So he was bought off, essentially. The Company recognised him as emperor, but he had no real power. It was a symbolic gesture—the Company needed his seal of legitimacy to collect taxes in the name of the Mughal Empire. Lucas: And that's the genius of the arrangement. The Company didn't have to claim sovereignty—they just claimed the right to collect revenue. To the local population, taxes were still being collected in the emperor's name. But the money went straight to the Company's coffers in Calcutta. Luna: So it's like a tax farming arrangement on a massive scale. Lucas: Exactly. And it had huge consequences. With the diwani, the Company's profits skyrocketed. In 1765, the year of the treaty, the Company's net revenue from Bengal was about four million rupees. By 1771, it was over fourteen million. That money financed the Company's wars and trade expansion across Asia. Lucas: But the downside was that the Company had no incentive to govern well. They just wanted to extract as much revenue as possible. The Nawab was still responsible for law and order, but he had no money because the Company took most of it. So you had a dual government—the Company controlled the finances, the Nawab had the responsibility, and nobody was really accountable. Luna: That sounds like a recipe for disaster. Lucas: It was. The worst example is the Bengal Famine of 1770. A drought and crop failure hit Bengal, and the Company's response was to keep collecting taxes at the same rate. They actually increased revenue demands in some districts. The result was a famine that killed an estimated ten million people—about a third of the population of Bengal. Lucas: Warren Hastings, who became Governor of Bengal in 1772, faced the aftermath. He tried to reform the system—he abolished the dual government and brought revenue collection directly under Company control. But the damage was done. The famine revealed the brutal logic of Company rule: extract as much as possible, regardless of the human cost. Luna: And this is where Edmund Burke comes in, right? Lucas: Yes. Burke later used the famine as a key point in his impeachment of Hastings. He argued that the Company's misrule in India was a betrayal of British values. But at the time, the Company's directors in London were more concerned with dividends than with the suffering of Indians. Luna: It's interesting—the diwani grant is often seen as the moment the British Raj began, even though the formal empire came later. Lucas: Absolutely. The diwani gave the Company the financial base to build a territorial empire. Over the next few decades, they used that money to fund armies, fight wars, and eventually take over most of India. The Treaty of Allahabad was the blueprint for indirect rule—control the revenue, and you control the territory. Lucas: And if you've been stepping into history with us episode by episode, you might have noticed how these turning points connect. For anyone coming with us through these conversations about colonialism, we try to keep them ad-free and accessible. A couple of dollars a month is genuinely what keeps these going—buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It's a small way to support the research and storytelling. And it really helps keep the archive open. Lucas: Yeah, every little bit counts. So back to the diwani—one of the ironies is that the Company's revenue system was actually based on existing Mughal practices. The Mughals had a well-developed system of tax collection, with detailed land surveys and records. The Company just took it over and made it more efficient—and more ruthless. Luna: Did they keep the same officials? Lucas: Initially, yes. They used Indian bankers and revenue agents, like the Jagat Seth family, who had financed the Company's rise. But over time, they replaced them with British collectors. Hastings set up a Board of Revenue in Calcutta, and district collectors were appointed to oversee tax collection. It was the beginning of the British civil service in India. Lucas: But the system was designed for extraction, not development. The Company didn't invest in irrigation, roads, or famine relief—they just took the land revenue and sent it back to Britain. That's how the Industrial Revolution was partly financed—by the wealth drained from Bengal. Luna: So the diwani is a cornerstone of both British prosperity and Indian impoverishment. Lucas: Exactly. And it's a reminder that colonialism wasn't just about battles and treaties—it was about the systematic transfer of wealth. The diwani grant was the legal instrument that made that transfer possible. And it set a precedent for how the Company would govern India for the next hundred years. Lucas: One last thing—the Treaty of Allahabad also had a clause that the Company would protect the Nawab of Bengal from external attack. That was the beginning of what we call subsidiary alliances—where the British offered military protection in exchange for control over foreign affairs and revenue. It's a model they used across India, from Hyderabad to Awadh. Luna: So the diwani wasn't just about Bengal—it was a template for empire. Lucas: Right. And it all started with that piece of paper in 1765, signed in Allahabad by a Mughal emperor who had no real choice. It's one of those moments in history where a single document changes everything.