The Permanent Settlement also known as the Cornwallis Code or Permanent Settlement of Bengal was an agreement between the East India Company and Bengali landlords, 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 Lord Cornwallis.
The East India Company, on being awarded the diwani or over lordship of Bengal by the empire following the Battle of Buxar in 1764, found itself short of trained administrators, especially those familiar with local custom and law. As a result, landholders found themselves unsupervised or reporting to corrupt and indolent officials; consequently the extraction of revenue proceeded unchecked by any regard for future income or local welfare.
In 1790 the Court bf Directors issued a ten year (Decennial) settlement to the zamindars, which was later made permanent in 1800. 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 proprietarily 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.
Incentivisation 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. 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 a very desirable commodity. 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. 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 under assessed, 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. 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.