Background
Earlier zamindars in Bengal, Bihar and Orissa had been functionaries who held the right to collect revenue on behalf of the Mughal emperor and his representative or diwan in Bengal. The diwan supervised the zamindars to ensure that they were neither lax nor overly stringent. When the East India Company was awarded the diwani or overlordship of Bengal by the empire following the Battle of Buxar in 1764, it found itself short of trained administrators, especially those familiar with local custom and law. As a result, landholders were unsupervised or they reported to corrupt and indolent officials. The result was that revenues were extracted without regard for future income or local welfare.
Following the devastating famine of 1770, which was partially caused by this short-sightedness, Company officials in Calcutta better understood the importance of oversight of revenue officials. They failed to consider the question of incentivisation; hence Warren Hastings, then governor-general, introduced a system of five-yearly inspections and temporary tax farmers.
Many of those appointed as tax farmers absconded with as much revenue as they could during the time period between inspections. Parliament took note of the disastrous consequences of the system, and in 1784 British Prime Minister William Pitt the Younger directed the Calcutta administration to alter it immediately. In 1786 Charles Cornwallis was sent out to India to reform the company's practices.
In 1786 the East India Company Court of Directors first proposed a permanent settlement for Bengal, changing the policy then being followed by Calcutta, which was attempting to increase taxation of zamindars. Between 1786 and 1790, the new Governor-General Lord Cornwallis and Sir John Shore (later Governor-General) entered a heated debate over whether or not to introduce a permanent settlement with the zamindars. Shore argued that the native zamindars would not trust the permanent settlement to be permanent, and that it would take time before they realised it was genuine. Cornwallis believed that they would immediately accept it and 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 1800. By the Permanent Settlement Act of 1793, the Zamindars class became more powerful than they were in the Mughal period.
Read more about this topic: Permanent Settlement
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