The Permanent Settlement, also known as the Permanent Settlement of Bengal, was an agreement between the East India Company and landlords of Bengal to fix revenues to be raised from land. It had far-reaching consequences for both agricultural methods and productivity in the entire British 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 that later came to be called the Cornwallis Code. The Cornwallis Code of 1793 divided the East India Company's service personnel into three branches: revenue, judicial, and commercial. Revenues were collected by zamindars, native Indians who were treated as landowners. This division created an Indian landed class that supported British authority. Cornwallis believed that they would immediately accept it and so 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, their right to keep armed forces was removed. They remained just the tax collectors of the land. There were considerably weakened as they were now banned from holding any court, as it was brought under the supervision of a collector appointed by the company. British officials believed that investing in the land would improve the economy. People also killed some British officials.
In 1819, the Governor-general of India, Francis Rawdon-Hastings, observed that "[the Permanent Settlement,] fashioned with great care and deliberation has....subjected almost the whole of the lower classes throughout these provinces to most grievous oppression." In 1829, Lord Bentinck, however, noted that the scheme did succeed in one important respect, saying, "If, however, security was wanting against extensive popular tumult or revolution, I should say that the Permanent Settlement....has this great advantage at least, of having created a vast body of rich landed proprietors deeply interested in the continuance of the British Dominion and having complete command over the mass of the people."
Overview
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. Smallholders were no longer permitted to sell their land, but they could not be expropriated by their new landlords.
Incentivisation of zamindars 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 the motivation quite clear by 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, one that 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 that previously did not exist. Many of the new purchasers of this land were Indian officials within the East India Company's government. The 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 acquire the wealth necessary to purchase land. 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 to a commercialisation of land that previously did not exist in Bengal and, as a consequence, 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".
Influence
The Company hoped that the Zamindar class would not only be a revenue-generating instrument but also 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, it worked both ways, as zamindars became a naturally conservative interest group. Once British policy in the mid-19th 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 zamindar. The state demand could not be increased but payment should be made on the due date, before sunset, so it was 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. That was a cause of many of the worst famines of the nineteenth century.
Once the salient features of the Permanent 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, who subjected them 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. This is because once Pakistan became separated from India, and the two began to fight over Kashmir, the goal of the government was revenue extraction to fund the military. As a result, the central leadership skewed the relationship between the elected and non-elected institutions of the state.