In 1600, Queen Elizabeth; the ruler of England; gave a charter to the East India Company. The charter granted the Company the sole right to trade with the East and no other English trading group could compete with it in the East. In those days, mercantile trading companies made profit mainly by excluding competition. Lack of competition enabled them to buy cheap and sell dear.
But the royal charter could not prevent trading companies from other European nations from entering the Eastern markets. It is important to mention that Vasco da Gama had discovered the sea route to India via the Cape of Good Hope; and he was a Portuguese. Hence, before the arrival of the British, the Portuguese had already established their presence in the western coast of India. They had their base in Goa. The Dutch began to explore the possibilities of trade in the Indian Ocean by the early seventeenth century. The French followed in quick succession.
India produced fine qualities of cotton and silk which had a big market in Europe. Various spices from India; like pepper, cloves, cardamom and cinnamon; were also in great demand in Europe. All the European companies were interested in buying these things which resulted in a price rise of these items. Thus, the potential profit reduced. Eliminating the rival competitors was the only way for a trading company to flourish. The intense competition to hold a monopoly resulted in fierce battle between the trading companies. Trade was carried on with arms and fortifications were done to protect the trading posts.
The East India Company set up its first factory on the banks of river Hugli in 1651. The warehouse was called the factory and the Company's traders were known as "factors. With the growth in trade, the Company persuaded merchants and traders to settle near the factory. The Company began to build fort around the settlement by 1696. It also got zamindari rights over three villages within two years by bribing the Mughal officials. One of these villages was Kalikata which subsequently developed into the city of Calcutta. The Company also convinced the Mughal emperor Aurangzeb to grant the Company the right to trade duty free. But some of the Company officials carried on private trade on the side; without paying the duty. This caused enormous loss of revenue for Bengal.
After the death of Aurangzeb, the Bengal nawabs began to assert their power and autonomy. Murshid Quli Khan, Alivardi Khand and Sirajuddaulah became the Nawab of Bengal in succession. They refused concessions to the Company, demanded large tributes in lieu of Company's right to trade. They denied the Company any right to mint coins and stopped it from extending its fortifications.
The Company, on the other hand, declared that the local officials used to make unjust demands. It was ruining the trade and removal of duties was necessary for the trade to flourish. The Company also wanted to enlarge its settlement and to rebuild its forts so that it could expand trade.
Thus, the conflicts between the nawab and the Company increased during the early eighteenth century.
Sirajuddaula became the nawab of Bengal in 1756; after the death of Alivardi Khan. The Company wanted to install a puppet ruler who would willingly give trade concessions and other privileges. The Company tried to help one of Sirajuddaulah's rivals to become nawab but did not succeed in its attempt.
Sirajuddaulah was angry and asked the Company to stop interfering in the political affairs of his dominion, stop fortification, and pay up revenues. Once the negotiations failed, the Nawab marched with 30,000 soldiers to the English factory at Kassimbazar. Company officials were captured, the warehouse was locked, all Englishmen were disarmed, and the English ships were blockaded. After that, the Nawab marched to Calcutta to establish control over the Company's fort.
When the news of the fall of Calcutta reached Madras, the Company officials in Madras sent forces under the command of Robert Clive. Reinforcements were sent by naval fleets. After that, prolonged negotiations with the Nawab followed.
Finally, Robert Clive led the Company's army against Sirajuddaulah at Plassey; in 1757. Sirajuddaulah was defeated in the Battle of Plassey. But this could be possible because of support of Mir Jafar which Clive had managed to secure. Mir Jafar was promised that he would be made the nawab after Sirajuddaulah.
The Battle of Plassey was the first major victory won by the Company in India. After the battle at Plassey, Sirajuddaulah was assassinated and Mir Jafar was installed as the nawab.
The Company was still unwilling to take the responsibility of administration. Expansion of trade was its prime objective. It preferred to expand trade by taking help from local rulers who could be amiable to its ambitions.
But even the puppet nawabs were not always as helpful as the Company wanted. In order to command some respect from their subjects, the nawab had to maintain some semblance of dignity and sovereignty.
When Mir Jafar started to show his assertion, he was deposed and Mir Qasim was installed in his place. When Mir Qasim began to complain, he was defeated at the Battle of Buxar (1764). Mir Jafar was once again made the nawab.
Mir Jafar had to pay Rs. 500,000 per month. But the Company wanted more money to finance its wars, and meet the demands of trade and other expenses. Mir Jafar died in 1765. By that time, the mood of the Company had changed. The Company now wanted to take direct control of power.
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