Baji Rao had to face a new contestant in Deccan in the person of Nizam-ul-Mulk Asaf Jah who had been appointed as Mughal viceroy in 1713 by the Syed brothers, the king-makers at Delhi. Nizam-ul-Mulk was quite aware of the politics in Deccan having taken part in Deccan campaigns in the company of his father, Firoz Jang and later on served as faujdar of Karnataka and governor of Bijapur in 1702.
He repudiated the Maratha claims to chauth and sardeshmukhi and tried to suppress the local Maratha chieftains. As counter-poise to Sahu and Peshwa Baji Rao, he developed close relations with their rival the Sambhaji of Kolhapur. However, to the great relief of Baji Rao, he was called back to Delhi when his brother Abdulla Khan became the Prime Minister.
He was replaced by Husain Ali Khan who made up with Baji Rao. Delhi politics compelled Nizam-ul-Mulk to return to Deccan where he defeated and killed Alim Ali Khan, nephew of Syed brothers who had taken over the administration of the Mughal subas. After the debacle and overthrow of the Syed brothers at Delhi, Nizam-ul-Mulk was appointed Viceroy of Deccan.
He crushed all local opposition and made the necessary arrangements to meet his principal rivals, the Marathas, in the south. He removed his capital from Aurangabad to the distant Hyderabad and won over many Maratha chiefs by offering them jagirs.
Contrary to the wishes of the Peshwa, he got exempted Hyderabad from chauth in lieu of a jagir he offered to Sahu in Berar. Anxious to involve the Marathas in a civil war, Nizam-ul-Mulk supported the claims of Sambhaji of Kolhapur against Sahu and refused to pay chauth till their respective claims were settled.
Peshwa refused to oblige Nizam-ul-Mulk further and declared war on him in August 1727. The Peshwa’s forces plundered Jalna, entered Aurangabad and then moved towards Burhanpur. Nizam made a dash towards Poona after capturing Talenganv, Narayanganj and Baramati. But he had to retrace his step to save his country.
A fierce battle was fought between the two armies in the mountainous country near Palkhed. The Nizam’s forces were completely routed and he concluded the treaty of Mungi-Sevgaum (6 March, 1728). Sahu was recognized as the sole king of the Marathas with a right to levy chauth and sardeshmukhi over the six subas of Deccan.
Peshwa not turned his attention towards his rival Sambhaji who was surprised in his camp and his family captured. He was, however, generously treated and was confirmed in the sovereignty of the territory in his possession.
The Peshwa had yet to settle another domestic dispute. Senapati Dabhade greatly resented Peshwa’s interference in the affairs of Gujarat which had been marked out as his sphere of influence. His two officers Pilaji Gaikwad and Kanthaji Kadam Bande had imposed chauth on Gujarat in A.D. 1725 which led to the invasion of the place by the Peshwa.
The latter expelled the two officers and got the revenue for the Mughal governor. Senapati greatly resented this infringement of his right and collected around him all the disaffected elements.
He also secretly negotiated with the Nizam. The Peshwa came to know of it and advanced towards Baroda. He defeated the combined armies on 1 April, 1731. His arch rival Dabhade died fighting.
The Peshwa now became supreme in Deccan and except in name he was the de facto ruler of Maratha dominions. The Nizam now came to tertns with him (August 1731) and was given the liberty to gratify his ambitions in the south while Peshwa obtained a free hand in the north.
The effects of this treaty were startling. The Maratha forces marched into central India, defeated the subedar Giridhar Bahadur and captured Ujjain. Within a decade the whole of Malwa passed into the hands of the Marathas who levied chauth.
Meanwhile Peshwa arrived at Bundelkhand in response to an appeal by Raja Chatrasal, who was hard pressed by Muhammad Khan, governor of Allahabad. The Mughal governor withdrew and the Chatrasal in recognition of the Maratha help offered a jagir in his territory to his benefactor.
The Peshwa now advanced with a huge army to the vicinity of Delhi which created turmoil in the Imperial capital but Baji Rao did not attack the Imperial capital and even desisted from plundering the suburbs.
The main reason was that the Peshwa did not want to antagonize the Emperor and Khan-i-Dauran, leader of Hindustani Party at the court who was favourably disposed to concede the demands of Baji Rao.
This move was, however, opposed by the Turani Party. The latter invited Nizam-ul-Mulk who returned to Delhi and at the head of thirty-five thousand men and a fine park of artillery moved against the Peshwa. He was joined by some Rajput and Bundela chiefs. Baji Rao inflicted a crushing defeat on Nizam-ul-Mulk who begged for peace.
On 7 January, 1738 at Duraha Sarai, Nizam-ul-Mulk signed the convention promising to “grant to the Pesva the whole of Malva, the complete sovereignty of the territory between the Narmada and Chambal, to obtain a confirmation of it from the Emperor and fifty lakhs of rupees for war expenses.”
Though Nizam failed to get the convention signed by the Emperor during his life-time, but no new subedar was sent from Delhi and the province practically remained in Maratha hands who collected revenue. However, this treaty was ratified in 1741 when Maratha power became de jure from de facto. On the west coast, too, Marathas captured Salsette and Bassein from the Portuguese in 1737.
Baji Rao was greatly perturbed over the invasion of Nadir Shah and tried to organize a united front of Indian powers against the foreign aggressor. But before he could implement his resolve, the Persian invader left India. At about the same time the Peshwa died in April 1740 prematurely at the age of forty-two.