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The Permanent Settlement — also known as the Permanent Settlement of Bengal (Bengali: Chirosthayi Bandobasto(চিরস্থায়ী বন্দোবস্ত)) — was an agreement between the East India Company and Bengali landlords to fix revenues to be raised from land, with far-reaching consequences for both agricultural methods and productivity in the entire Empire and the political realities of the Indian countryside. It was concluded in 1793, by the Company administration headed by Charles, Earl Cornwallis. It formed one part of a larger body of legislation enacted known as the Cornwallis Code.
Earlier zamindars in Bengal, Bihar and Odisha had been functionaries who held the right to collect revenue on behalf of the Mughal emperor and his representative or diwan in Bengal. The diwan supervised the zamindars to ensure that they were neither lax nor overly stringent. When the East India Company was awarded the diwani or overlordship of Bengal by the empire following the Battle of Buxar in 1764, it found itself short of trained administrators, especially those familiar with local custom and law. As a result, landholders were unsupervised or they reported to corrupt and indolent officials. The result was that revenues were extracted without regard for future income or local welfare.
Following the devastating famine of 1770, which was partially caused by this short-sightedness, Company officials in Calcutta better understood the importance of oversight of revenue officials. They failed to consider the question of incentivisation; hence Warren Hastings, then governor-general, introduced a system of five-yearly inspections and temporary tax farmers.
Many of those appointed as tax farmers absconded with as much revenue as they could during the time period between inspections. Parliament took note of the disastrous consequences of the system, and in 1784 British Prime Minister William Pitt the Younger directed the Calcutta administration to alter it immediately. In 1786 Charles Cornwallis was sent out to India to reform the company's practices.
In 1786 the East India Company Court of Directors first proposed a permanent settlement for Bengal, changing the policy then being followed by Calcutta, which was attempting to increase taxation of zamindars. Between 1786 and 1790, the new Governor-General Lord Cornwallis and Sir John Shore (later Governor-General) entered a heated debate over whether or not to introduce a permanent settlement with the zamindars. Shore argued that the native zamindars would not trust the permanent settlement to be permanent, and that it would take time before they realised it was genuine. Cornwallis believed that they would immediately accept it and begin investing in improving their land. In 1790 the Court of Directors issued a ten-year (Decennial) settlement to the zamindars, which was made permanent in 1793. By the Permanent Settlement Act of 1793, the Zamindars power of keeping the armed forces were taken back and they remained just the tax collectors of the land. The power of Zamindars were considerably weakened as they were not allowed to hold any court as it was brought under the supervision of Collector appointed by the company. British officials believed that investing in the land would improve the economy. They did not want to take direct control of local administration in villages because of several reasons.They did not want to annoy those people who had traditionally enjoyed power and prestige in the village. In order to keep powerful people happy and to collect better revenue, Lord Cornwallis introduced the Permanent Settlement. As per permanent system, rajas and taluqdars were recognized as zamindars. The zamindars were supposed to collect the land revenue from the peasants. As per the permanent settlement:
- The rate of revenue was not to be increased ever in the future.
- The company officials believed that this would give some motivations to zamindars to invest in the land.
- Zamindars would be assured of long-term returns of continuous flow of revenue.
- It also created a new social class of land-lords who were loyal to the British.
The question of incentivisation now being understood to be central, the security of tenure of landlords was guaranteed; in short, the former landholders and revenue intermediaries were granted proprietorial rights (effective ownership) to the land they held. In addition, the land tax was fixed in perpetuity, so as to minimise the tendency by British administrators to amass a small fortune in sluiced-away revenue. Smallholders were no longer permitted to sell their land, though they could not be expropriated by their new landlords.
Incentivization of zamindars in this case was intended to encourage improvements of the land, such as drainage, irrigation and the construction of roads and bridges; such infrastructure had been insufficient through much of Bengal. With a fixed land tax, zamindars could securely invest in increasing their income without any fear of having the increase taxed away by the Company. Cornwallis made this motivation quite clear, declaring that "when the demand of government is fixed, an opportunity is afforded to the landholder of increasing his profits, by the improvement of his lands". The British had in mind "improving landlords" in their own country, such as Coke of Norfolk.
The Court of Directors also hoped to guarantee the company's income, which was constantly plagued by defaulting zamindars who fell into arrears, making it impossible for them to budget their spending accurately.
The immediate consequence of the Permanent Settlement was both very sudden and dramatic, and one which nobody had apparently foreseen. By ensuring that zamindars' lands were held in perpetuity and with a fixed tax burden, they became desirable commodities. In addition, the government tax demand was inflexible and the British East India Company's collectors refused to make allowances for times of drought, flood or other natural disaster. The tax demand was higher than that in England at the time. As a result, many zamindars immediately fell into arrears.
The Company's policy of auction of any zamindari lands deemed to be in arrears created a market for land which previously did not exist. Many of the new purchasers of this land were Indian officials within the East India Company's government. These bureaucrats were ideally placed to purchase lands which they knew to be underassessed, and therefore profitable. In addition, their position as officials gave them opportunity to quickly acquire the wealth necessary to purchase land through bribery and corruption. They could also manipulate the system to bring to sale land that they specifically wanted. Historian Bernard S. Cohn and others have argued that the Permanent Settlement led firstly to a commercialisation of land which previously did not exist in Bengal. And secondly, as a consequence of this, it led to a change in the social background of the ruling class from "lineages and local chiefs" to "under civil servants and their descendants, and to merchants and bankers". The new landlords were different in their outlook; "often they were absentee landlords who managed their land through managers and who had little attachment to their land".
The Company hoped that the zamindar class would not only be a revenue-generating instrument but serve as intermediaries for the more political aspects of their rule, preserving local custom and protecting rural life from the possibly rapacious influences of its own representatives. However, this worked both ways; zamindars became a naturally conservative interest group. Once British policy in the mid-nineteenth century changed to one of reform and intervention in custom, the zamindars were vocal in their opposition. The Permanent Settlement had the features that state demand was fixed at 89% of the rent and 11% was to be retained by the Zamindars. The state demand could not be increased but payment should be made on the due date, before sunset and so it is also known as the 'Sunset Law'. Failure to pay led to the sale of land to the highest bidder..
While the worst of the tax-farming excesses were countered by the introduction of the Settlement, the use of land was not part of the agreement. There was a tendency of Company officials and Indian landlords to force their tenants into plantation-style farming of cash crops like indigo and cotton rather than rice and wheat. This was a cause of many of the worst famines of the nineteenth century. In addition, zamindars eventually became absentee landlords, with all that that implies for neglect of investment on the land.
Once the salient features of the Settlement were reproduced all over India – and indeed elsewhere in the Empire, including Kenya – the political structure was altered forever. The landlord class held much greater power than they had under the Mughals, where they were subject to oversight by a trained bureaucracy with the power to attenuate their tenure. The power of the landlord caste/class over smallholders was not diluted in India until the first efforts towards land reform in the 1950s, still incomplete everywhere except West Bengal. In Pakistan, where land reform was never carried out, elections in rural areas still suffer from a tendency towards oligarchy reflecting the concentration of influence in the hands of zamindar families.
- Bernard S. Cohn, "The Initial British Impact on India: A case study of the Benares region", The Journal of Asian Studies, Vol 19, No 4.no 7 settlements
- The History of India, vol 2, T.G.Percival Spear, Penguin (1990) ISBN 0-14-013836-6
- India: A History, John Keay, Grove/Atlantic (2001) ISBN 0-8021-3797-0
- A rule of property for Bengal: an essay on the idea of permanent settlement, Ranajit Guha, Durham, Duke U Press (1996) ISBN 0-8223-1771-0
- Washbrook, D. A. (1981). "Law, State and Agrarian Society in Colonial India". Modern Asian Studies 15 (3): 649–721. doi:10.1017/s0026749x00008714.