Latest / The Rise of Colonialism: How Europe Divided the World — Fexingo History / The Diwani Grant of 1765: How the East India Company Became Tax Lord
Transcript
- Lucas: So we've talked a lot about the battles — Plassey, Buxar, Wandiwash — but I think the really transformative moment came after the fighting stopped. In 1765, Robert Clive negotiated the Treaty of Allahabad with the Mughal emperor Shah Alam II. And the key clause wasn't about territory, it was about money: the diwani of Bengal, Bihar, and Odisha. Luna: The diwani — that's the right to collect taxes, right? Lucas: Exactly. The diwani was the revenue administration. Under the Mughals, the emperor appointed a diwan who managed tax collection, paid salaries, and funded the army. By granting the diwani to the East India Company, Shah Alam II essentially gave them control over the entire financial machinery of the richest provinces in India. Lucas: And this was a game-changer. Before 1765, the Company made money through trade — spices, textiles, opium. After 1765, they had a steady stream of land revenue. Suddenly, they weren't just merchants; they were sovereign tax collectors. Luna: But what did Shah Alam II get out of it? He was giving away enormous power. Lucas: Good question. Shah Alam II was in a weak position. After the Battle of Buxar in 1764, the Mughal army was crushed, and the emperor was essentially a puppet. Clive offered him a deal: the Company would protect him and pay him an annual tribute of twenty-six lakh rupees — about 260,000 pounds — in exchange for the diwani. So Shah Alam got a pension, but he lost effective control. Lucas: The arrangement also created a 'dual government' in Bengal. The Nawab of Bengal — by then Mir Jafar's son, najm ud daula — remained the nominal ruler. He was supposed to handle justice and policing. But the Company controlled the treasury. So the nawab had no real power; he was a figurehead. Luna: It sounds like the Company was running things from behind the scenes. Lucas: Absolutely. And the system was designed to maximize revenue extraction. The Company appointed its own officials — called supervisors, later collectors — to oversee the districts. They used local zamindars, who were traditional landowners, to actually collect the taxes. But the Company set the rates, and they were ruthless. Lucas: The problem was, the Company didn't really understand the existing Mughal revenue system. They tried to impose fixed cash assessments, but the harvests varied, and the local officials often pocketed the surplus. Corruption was rampant. And when crops failed, the Company still demanded payment. Luna: That brings us to the famine of 1770, doesn't it? Lucas: It does. The Bengal Famine of 1770 was catastrophic. An estimated ten million people — about a third of Bengal's population — died. And while the monsoon failure was the trigger, the Company's revenue policies made it worse. They didn't suspend tax collection, and they actually increased the assessment on some lands. Grain was exported to other Company territories even as people starved. Luna: That's horrifying. Lucas: It's one of the darkest chapters. And the Company's response was telling. They actually made a profit during the famine years because they kept collecting. Warren Hastings, who became Governor of Bengal in 1772, later acknowledged the disaster but defended the revenue system as necessary for the Company's survival. Luna: And speaking of survival — Lucas, this kind of deep dive, it takes a lot of research. If listeners want to support the show, where can they do that? Lucas: Oh, right. So we keep this show ad-free, and that's only possible because a handful of listeners chip in through buy me a coffee dot com slash fexingo. It's a small thing, but it literally covers the research and production. Luna: Yeah, and it's completely optional — no pressure. But if you've been getting something out of these conversations, that's where to go. Lucas: Anyway — back to Hastings. He tried to reform the system. In 1772, he abolished the dual government and made the Company directly responsible for both revenue and justice. He appointed English collectors in each district, with Indian deputies. He also tried to codify the tax rates and reduce corruption. Luna: But did that actually improve things for the people? Lucas: Marginally, maybe. But the fundamental problem remained: the Company was designed to extract profit, not to govern. Hastings' reforms centralized power but didn't change the incentive to squeeze as much revenue as possible. The zamindars still had to meet their quotas, and if they couldn't, they lost their lands. Lucas: There's also a fascinating legal angle. Under the diwani, the Company inherited the Mughal system of courts, but they started to reinterpret Islamic and Hindu law through a British lens. Hastings commissioned translations of Hindu legal texts, like the 'Code of Gentoo Laws,' to help English judges administer justice. It was an early step in the colonial project of codifying 'native' law. Luna: So the diwani wasn't just about taxes — it was the foundation of the entire colonial state. Lucas: Exactly. Once the Company controlled revenue, they could fund armies, build infrastructure, and expand. The diwani of 1765 is the moment the East India Company transformed from a commercial enterprise into a territorial empire. Everything that followed — the Anglo-Mysore wars, the Anglo-Maratha wars, the eventual British Raj — was built on that revenue base. Luna: It's amazing how one legal document changed the course of history. Lucas: And it's a reminder that empire wasn't built just by battles. It was built by bureaucrats and accountants. The diwani was a tax farm, but it was also a license to rule. And the British held onto that license for nearly two centuries. Luna: So when we talk about colonialism, we should really be talking about tax collection. Lucas: In a lot of ways, yes. Control of revenue is control of life. And the diwani was the key that unlocked India for the British. It's a story that deserves more attention.