Managing money: What India can learn from its history of colonial rule in order to become rich again

Statistics can beat guns, or, how the English won

We often forget that the English East India Company was not a major military force in India right up to the Battle of Plassey. At that point of time, they had only a small military, raised with the objective of protecting the properties of the Company. But they were able to win the loyalty of those men simply by paying better.

That Indian rulers lost some battles to the company gives rise to a belief that better tactics, better weaponry, better organisation won the day. We need to remember that Indian rulers cottoned on to all those techniques very fast. Before 1757, they won some battles and lost some. The Marathas had one of the most powerful armies in the world. What counted more was the Company’s ability to manage money, to manage taxation much better so that they could depend on revenues to pay their soldiers.

Managing money and taxes key to English victory

It was in their taxation systems that Indian rulers were extremely weak. The Nawab of Bengal had access to one of the richer province in the country. But he was not able to make it yield enough revenue to manage his army. This was something the Company did very well. That Mir Jafar betrayed his master was not important. What was important was that the soldiers of the Bengal Army saw nothing wrong in betraying their master either. The Nawab had not cared to pay them in a regular manner or to earn their loyalty.

What happened to the armies of various Indian rajahs and nawabs against the English East India Company is an abject lesson in the criticality of financial management. Wondering English observers reported about the way in which Indian armies were continuously in arrears of pay for the rank and file. It was routine for troops to protest against non-payment of salary.

An early-recorded instance of protest was penned down by William Henry Tone, an English East India Company official who served in the army of one of the Maratha rulers towards the end of the eighteenth century. He tells us that the Maratha cavalry was one of the most irregularly paid of all the troops. In those times, the cavalry was only paid a daily ration of flour; the cash salary came as and when the silladar (armour bearer), that is the man who had hired the troops, got his dues.

The silladar in turn, had to pay out a sizeable cut to the state official who took the roll call. Tone says that “upon this occasion it is always necessary that the Brahman who takes it should have a bribe...” In order to recover arrears of pay, the troops resorted to the time-honoured tradition of dharna.

Dharna essentially consisted of putting the debtor in confinement until such time as he paid up. It did not matter how high the social status of the debtor might be. “Any person in the sircar’s service has a right to demand his pay of the prince or his minister...” No one would dream of interfering with this kind of dharna since it was in a common cause and nor could the soldier be accused of mutiny.

Colonel Thomas Duer Broughton, commander of the Resident’s escort at the camp of Daulat Rao Sindhia, the Maratha general, gives us a remarkable eyewitness account of life at an army camp in the early nineteenth century. Chronically bankrupt, Sindhia was used to being accosted in his camp by intemperate subordinates who had not been paid for months together. The attempts at resource mobilisation included daily collection of a few paisa per merchant in the vicinity.

Sindhia was liberal in giving advance receipts for future cash instalments to be paid to him by the Company. Broughton narrates an incident where two Khans who commanded important units in Sindhia’s army had not been paid for months. They then proceeded to do dharna against Sindhia himself with drawn swords.

So Sindhia had two thousand rupees sent to them and promised to settle the rest. The Khans then returned to their tents only to be surrounded by guns and battalions. Sindhia had sent orders that they were to leave the camp and prepare to march next morning. He also promised to settle their bazaar debts of Rs 3 lakh and send Rs 20,000 besides.

When the Khans refused and pitched tents outside the camp, they were harassed by creditors to the point that they had to sell off any spare dresses and arms and even killed rats for food, so says Broughton. So much so that Sindhia had to post two companies of soldiers to protect the Khans against their creditors. His minister tried to negotiate with the Khans to return; he even said that Sindhia was drunk when he asked them to leave the camp and that the promised arrears would be settled. Negotiations failed and the troops marched away. Needless to say, neither were the debts settled, nor any cash paid.

Indian rulers never paid the soldiers regularly

The armies of the Marathas were some of the best in the country. The troops were brave and hardy, they hardly cared for caste distinctions and they were well equipped with military tactics. But their rulers never managed to set up taxation systems that would enable them to provide their soldiers with salaries on time.

The Indian soldier in a local army, had to organise his own horse, his own gear and even his own arms. These were costly assets. Often his greater anxiety was to preserve his equipment, rather than the battle fortunes of his regiment.

The English company in contrast, spent much time and effort on taking care of their sipahis, and especially the invalid ones. An entire section of the Company army administration was devoted to what they called the “Invalid Establishment”. This establishment was to see to the affairs of all those who had served the company army for 10-12 years but were no longer able to serve due to age or infirmity. Further it took care of even those who had served a lesser amount of time but had suffered wounds in the service of the company.

From 1788 onwards, it was company policy to allot lands to these invalid soldiers and to settle them in “invalid thanahs” in company territory. In addition to the land, they were also given some cash gratuity. From 1790 onwards, special provisions were made for company sipahis on foreign service, to remit money to their families.

All this the English company was able to do by managing its finances such as to pay its soldiers regularly. This ability of the English company to manage information, to manage money, to systematise taxation, is something that is difficult to find in the Indian landscape. The Mughal army might have offered more by way of spoils or even cash salary but there was no such provision for the retired life of the common soldier. The English company set-up systems whereby each commanding officer was to certify the years of service put in by the soldiers under his command. Only upon verification of his record of service, was the soldier admitted to the “invalid establishment”.

One company employee, William Henry Sykes, worked out detailed mortality tables for soldiers in different age groups ranging from 21 to 52. He showed that mortality in the various age groups ranged from roughly 2.5 to 6 per cent. These figures he used to argue for the introduction of life insurance for the natives of India at low premiums. Such statistical calculations enabled the English East India Company to put its pension establishment on a sound footing. Later such mortality tables became critical to the life insurance business.

If the English company was able to offer more regular pay to the Indian soldier, it was able to offer greater security to the average Indian businessmen. And for the rich businessmen who were their business rivals: the Company made it difficult for them to operate independently of the Company.

Whichever way we look at it, the economic predominance of the English East India Company preceded military predominance. So we should ask then with the existence of an unregulated market, with large numbers of Indian businessmen who were skilled, how was it that such a situation emerged in the first place. Also we shall see how the lack of state intervention and low taxation, did not help businessmen; it was a positive hindrance.

Excerpted with permission from Making India Great Again: Learning from our History, Meeta and Rajivlochan, Manohar.