Lord Dalhousie had come to India as Governor-General in 1848 and was determined to expand the British rule in India. This he achieved by applying his Doctrine of Lapse. Under this, if the ruler of a protected state died without a natural heir, his state could not pass on to an adopted heir. Instead, it was to be annexed by the British, unless the adoption had been approved by the British earlier. Many states - Jhansi, Satara and Nagpur - were made a part of the British Empire in this manner.
From 1600 - 1757, the Company was a trading corporation which brought goods or precious metals in India and exchanged them for Indian goods like textiles and spices, which it sold abroad. Its profits came mainly from the sale of Indian goods abroad. But after the Battle of Plassey, its commercial relations with India changed. Now the Company could use its political control over Bengal to have monopoly over Indian trade and production. The Company forced the Bengal weavers to work at lower wages and forbade them to work for Indian merchants. The Company monopolized the sale of raw cotton and charged the Bengal weavers an excessive price. Simultaneously, Indian textiles had to pay heavy duties on entering England. The British wanted to protect their rising machine industry whose products could not compete with the cheaper and better Indian goods.
With this began the process of converting agricultural India to an economic colony of England. Instead of exporting finished goods, India was now exporting raw materials like raw cotton and raw silk and importing finished goods. This policy was to help the British Industry, which put great pressure on the Company. The results were the ruin of local handicrafts and industries and increasing poverty in India.
In 1765, the Company acquired the Diwani rights or the land revenue rights of Bengal, Bihar and Orissa. Its income from land revenue fluctuated due to many factors. So the Company decided to introduce a Permanent Settlement of Land, under which the Company’s income from land revenue would be fixed. This Permanent Settlement or the Zamindari System was introduced in 1793 by Lord Cornawallis.
The Zamindars and revenue collectors became landlords to act as Government agents in collecting land revenue from the ryot by becoming owners of the entire land in their Zamindaris. But the cultivators were reduced to mere tenants and were deprived of land rights. The Zamindars were to pay 10/11th of the rental they got from the peasantry to the Government, keeping only 1/11th for themselves. The Zamindar had to pay his revenue in time even if the crop had failed, otherwise his land was sold. The Company wanted to secure maximum revenue without consulting the Zamindars or the cultivators. This Settlement did increase the Company’s income, but ruined the peasantry with excessive revenue demands, confiscation of land and increasing poverty.
The same system was introduced with minor variations in Punjab under the name Mahalwari System and in South under the name Ryotwari Settlement. Basically, the features were the same with minor variations.