At the time of his appointment Cornwallis was especially directed to devise a satisfactory solution of the land revenue system in Bengal which should ensure the Company's interest as well of the cultivators. The first essential for a satisfactory approach to the problem was a thorough enquiry into the usages, tenures and rents prevalent in Bengal.
Prolonged discussion followed in which the leading part was taken by Sir John Shore, the President of the Board of Revenue, Mr. James Grant, the Record Keeper and the Governor-General himself. The discussion centred round three vital questions: With whom was the settlement to be made-the zamindars or the actual tillers of the soil? What would be the state's share in the produce of land? Should the settlement be for a term of years or permanent?
Cornwallis' conclusion was very much affected by what was practicable. The Company's servants did not possess sufficient administrative experience to make a direct settlement with system of farming estates to the highest bidder had been tried for long with undesirable consequences. Thus, Cornwallis decided to make a settlement with the zamindars
The zamindars were recognised owners of land and a ten years settlement was made with them in 1790. In 1793 the decennial settlement was declared permanent and the zamindars and their legitimate successors were allowed to hold their estates at that much assessed rate for ever. The state demand was fixed at 89% of the rental, leaving 11% with the zamindars as their share for their trouble and responsibility.
Observations on the Settlement: Contemporary opinion claimed a number of Advantages for the Permanent Settlement:-
(i) Financially, the Permanent Settlement secured a fixed and stable income for the state and the state could depend upon that income, monsoons or no monsoons. Further, it saved the Government the expenses that had to be spent in making periodical assessments and settlements.
(ii) Economically, it was claimed that the Permanent Settlement would encourage agricultural enterprise and prosperity. Waste land would be reclaimed and the soil under cultivation would be improved. The zamindars would introduce new methods of cultivation like better rotation of crops, use of manure etc. Thus, the Settlement would create conditions for the development of the fullest power of the soil. This in turn would create a contended and resourceful peasantry.
(iii) Politically, Cornwallis expected that the Permanent Settlement should create a class of loyal zamindars who would be prepared to defend the Company at all costs because their rights were guaranteed by the Company. Thus, the Permanent Settlement secured for the government the political support of an influential class in the same way as the Bank of England had for William III after 1694. The zamindars of Bengal stood loyal during the great rebellion of 1857. Seton Karr commented that the "political benefits of the settlement balance its economic defects".
(iv) Socially, the hope was expressed that the zamindars would act as the natural leaders of the ryot and shows their public spirit in helping the spread of education and other charitable activities.
(v) Lastly, the Permanent Settlement of Bengal set free the ablest servants of the Company for judicial services. Further, it avoided the evils normally associated with the temporary settlements, the harassment of the cultivator, the tendency on the part of the cultivator to leave the land to deteriorate towards the end of the term to get a low assessment etc.
The little economic or political purposes the Settlement might have served during its first few years, it soon turned into an engine of exploitation and oppression. It created "feudalism at the top and serfdom at the bottom". Many of the advantages claimed proved to be illusory,
(i) Financially, the state has proved to be a great loser in the long run. The advantages of a fixed and stable income were secured at the great sacrifice of any prospective share in the increase of revenue from land. Even when new areas of land were brought under cultivation and the rents of the land already under cultivation had been increased manifold, the state could not claim it legitimate share in the increase. The state demand fixed in 1793 remained almost the same even in 1954.
(ii) The Permanent Settlement retarded the economic progress of Bengal:
Most of the landlords did not take any interest in the improvements of the land but were merely interested in extracting the maximum possible rent from the tyot the cultivator, being under the constant fear had no incentive improve the land. The zamindars did not live on the estates, but away in the cities where they wasted their time and money in luxury. Thus, the zamindars became a sort of 'distant suction pumps' sucking the wealth of the rural areas and wasting it in the cities. Besides, a host of intermediaries grew up between the state and the actual cultivator.
This process of sub-infatuation sometime reached ridiculous proportions, there being as many as 50 intermediaries. All the intermediaries looked to their profits and the ryot was reduced to the position of a pauper. In this context it may be worthwhile to quote the view of Carver who wrote: "Next to war, famine and pestilence, the worst thing that can happen to a rural community absentee landlordism".
(iii) Politically, the Permanent Settlement did fit in the game of the Company and the zamindars along with other vested interests became the favourite children of Imperialism. However, the British Administration gained the loyalty of the few at the cost of the alienation of the masses. Besides, the system divided rural society into two hostile classes, namely, the zamindars and the tenants.
(iv) Socially, the Permanent Settlement stands condemned. By recognising the absolute right of ownership of the zamindars the Company sacrificed the interests of the peasants whether of property or occupancy. In a way the peasants suffered from a double injustice, first by surrendering their property rights and secondly by being entirely left at the mercy of the zamindars that rack-rented them.
True, the Government attempted rectification and passed tenancy legislation to protect the interests of the ryot, but the zamindars evaded the protective legislation. The growth of population resulting in an excessive pressure on land played into the hands of the zamindars and they not infrequently ejected the ryot.
In fact, the peasant was reduced to the position of a serf. In the beginning, the zamindars themselves were in great difficulty. The state demand was pitched very high. Added to this over-assessment was the harshness in the method of collection of revenue.
The zamindars were required to deposit the revenue in the government treasury by the sunset of the last day fixed for the purpose failing which the lands were confiscated and auctioned. This 'sunset' law created great hardships and deprived many zamindars of their land for temporary difficulties. During 1797-98 estates worth 17 per cent of the total revenue of Bengal were sold for nonpayment of the state demand in time. The 'sunset' law created so great insecurity that at one time no bidders were coming forth.' The frequent changes in the ownership of land affected adversely the condition of the cultivators.
Conclusion: - That a temporary settlement for 40 or 50 years, renewable again and again, would have secured all the objectives Cornwallis had in view. It was hardly a wise policy measure to bind posterity for all times. If some Indian nationalists like Romesh Dutt gave their unqualified support to the policy of Permanent Settlement it was partly due to the fact that they themselves came from a class which was the beneficiary from the Settlement of Bengal and partly due to the fear that the control of the bureaucracy would be worse than that of the zamindars. In the twentieth century the economic insufficiency and social injustice of the settlement became very glaring. Besides, it was found against the tenets of political or social justice.
The Government of Free India has tried to set right the wrong done by Cornwallis. The West Bengal Acquisition of Eastates Act, 1955, has abolished zamindari by paying compensation to the zamindars at a huge expense to the public exchequer.