The Founding of the East India Company

No English institution did more to make the British Empire than the East India Company, and no institution so thoroughly blurred the line between commerce and conquest. Chartered by Elizabeth I on 31 December 1600 as a fifteen-year monopoly on trade east of the Cape of Good Hope, the company began life as a co-operative of London merchants hoping to break into the pepper and spice trades dominated by the Dutch and Portuguese. Two and a half centuries later it governed a subcontinent, commanded a private army larger than any European state’s, and had become — to quote a phrase sometimes attributed to its critics — a “state in the guise of a merchant.” The story of how a few hundred thousand pounds of London capital became an instrument of continental rule is, in many respects, the central story of British India.

The Royal Charter of 1600

The charter that founded the company was, in the first instance, a petition by a loose consortium known as the “Merchant Adventurers to the New Lands,” who had been trading privately with the East Indies since at least 1589. They wanted monopoly protection against interlopers and the dignity of royal backing. Elizabeth, ever reluctant to spend public money, obliged with letters patent granted on the last day of 1600, naming “George, Earl of Cumberland, and 215 knights, aldermen, and burgesses” of London as a corporate body with the right to trade “into the East Indies” in perpetuity for an initial term of fifteen years. The company could set its own rules, discipline its own servants, and — crucially — exercise quasi-governmental authority over English subjects in Asia.

Capital was thin. The early voyages were financed by individual subscribers on a voyage-by-voyage basis; the permanent joint stock did not appear until 1612. The first fleet, commanded by James Lancaster, sailed in 1601 with four ships and returned in 1603 with a cargo of pepper that cleared roughly 95 percent profit. It was the sort of return that could not be ignored. By 1612 the company had secured privileges from the Mughal emperor Jahangir permitting it to trade at Surat, the principal port of western India — the first formal foothold in a continent that would, in time, become its principal possession.

Factories, Forts, and the Three Presidencies

The English word “factory” in the early modern period meant a trading post, not a manufactory. The first English factory in India was set up at Surat in 1612, after Captain Thomas Best’s small squadron beat off a Portuguese fleet in October 1612 — an engagement that the Mughals, who had no love for the Portuguese, welcomed. Surat served as the company’s western headquarters for nearly fifty years.

Elsewhere, the company’s geography expanded through a mixture of purchase, gift, and conquest. In 1639, the company’s governor at Madras, Francis Day, obtained a grant of land at Madraspatnam from the local Nayak ruler and built Fort St. George, the seed of modern Chennai. On the east, the company established a foothold at Hughli in the 1650s; in 1690 Job Charnock, the company’s agent, moved south and founded Calcutta — later to be the capital of British India. The island of Bombay came to the company more by accident: part of the dowry of Catherine of Braganza when she married Charles II in 1661, it was transferred to the company in 1668 for an annual rent of £10 in gold. By 1700 the three “presidencies” of Madras, Bombay, and Bengal formed the administrative spine of English India, though the company ruled in each case as the tenant, not the sovereign, of Indian rulers.

Trade, Textiles, and the Bullion Problem

Spices were the original lure. Pepper, cinnamon, cloves, nutmeg, and mace from the East Indies were the most valuable cargoes in the world, and the original reason the company existed. But India was not a spice country, and as the English established themselves on the subcontinent, the centre of gravity shifted. By the eighteenth century, the company was importing Indian textiles — calico, muslin, silk — in enormous quantities, alongside indigo, saltpetre, and raw silk. The textile trade fed both the European consumer and the African re-export trade that supplied the Atlantic slave economy with cheap Indian cottons.

The trade was structurally lopsided. Europeans had very little that Asians wanted to buy, and the company was forced to ship silver — vast quantities of it — from London and Amsterdam to pay for Asian goods. This “bullion problem,” as it came to be called, was the background against which the company was eventually driven to conquer territory: bullion could be replaced by tax revenue. As C. A. Bayly argued in Empire and Information (1996), the East India Company in the early modern period was less a simple commercial enterprise than an information empire, a network of factors, agents, and alliances that gradually extended English influence across a continent it never quite intended to rule.

The Dutch Rival and the Massacre of Amboyna

The English company was a junior partner. Its principal rival, the Dutch East India Company (VOC), had been chartered in 1602 with six times the capital and a far more aggressive strategic doctrine. The two companies competed fiercely for the spice trade of the Moluccas — the original and still richest source of cloves and nutmeg. The rivalry spilled into violence in February 1623 at Amboyna, in the Banda Islands, where the Dutch governor, suspecting a conspiracy, tortured and executed some twenty people: ten English traders, around ten Japanese mercenaries, and a handful of others. The outcry in London was enormous; the event remained a staple of English anti-Dutch propaganda for a century.

The two companies reached an uneasy accommodation through treaties in 1619, 1627, and 1639 — most importantly the 1639 treaty, by which the English effectively conceded the East Indies proper to the Dutch in exchange for undisputed access to India. From this division of the Asian world the English East India Company would draw its strength: free of Dutch competition in India, it could turn its attention to the wealth of the subcontinent.

From Trader to Sovereign

The transformation of the company from merchant to ruler is the most consequential, and the most analysed, episode in the early history of British India. The Mughal Empire, the greatest state in early modern Asia, began to crack in the eighteenth century: the invasion of Nadir Shah in 1739, the wars of succession among the regional nawabs, the Maratha expansion, the disintegration of central authority at Delhi. Into this vacuum stepped the company — not by design, but because its commercial position in Bengal made intervention unavoidable. Clive’s Battle of Plassey of 1757 and the grant of the diwani in 1765, by which the Mughal emperor Shah Alam II conceded to the company the right to collect revenue across Bengal, Bihar, and Orissa, converted a merchant into a sovereign of perhaps twenty million subjects.

The company would rule Bengal directly for the next ninety-three years. Its dissolution, after the Indian Rebellion of 1857, was enacted by the East India Stock Dividend Redemption Act of 1873 and came into effect on 1 June 1874. By then the company had been the most consequential single instrument of English overseas power for nearly three centuries, and its founding in 1600 is one of the founding acts of the British Empire itself.

Historiographical Note

The East India Company has been read very differently across generations. The Whig historians of the nineteenth century — John Stuart Mill, Mountstuart Elphinstone — treated company rule as, on balance, a preparation for the more orderly Crown Raj. The nationalist historians of the twentieth century, beginning with R. C. Majumdar and carried forward by scholars like P. J. Marshall, treated the company as a more equivocal institution, capable of great administrative achievement and of great cruelty in the same decade. The most influential recent scholarship — K. N. Chaudhuri’s The Trading World of Asia and the English East India Company (1978), the essays collected by Sanjay Subrahmanyam in The Political Economy of Commerce (1990), and the work of Philip J. Stern — has tended to read the company as an idiosyncratic corporate form, neither state nor firm in the modern sense, whose importance lay in the remarkable reach of its information networks and credit structures as much as in its territorial power. The older view, that the company was a “predatory state” (Robb’s phrase) operating in Asia for the benefit of a small cadre of investors, has been partially modified but not overturned.

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