Lord Cornwallis concluded the Permanent Settlement Act of 1793. Permanent Settlement was a grand contract between the East India Company and the Landholders of Bengal (Zamindars and independent Talukdars of all designations). Under this act, the landholders and Zamindars were admitted as the absolute owners of landed property to the colonial state system. Not only those, the Zamindars and landholders were allowed to hold their proprietary right at a rate that never changed. Under this contract of Permanent Settlement, the Government could not enhance the revenue demands on Zamindars.
Earlier, zamindars of Bengal, Bihar and Orissa had officials for collecting revenue on behalf of the Mughal emperor and his representative or Diwan in Bengal. The Diwan would in turn supervise on them so that there is no less or excessive pressure for earning revenue. East India Company was able to win over Diwani or the right to rule Bengal following the victory in Battle of Buxar in 1764. The Company thus had the responsibility of ruling but it lacked the trained administrator, especially with the persons who knew local tradition and custom. As a result the landlords and Zamindars had to deposit the revenue to the corrupted officials of East India Company. As a consequence the revenue had no certain amount. There was constant pressure to exceed the amount as well as the revenue was never used for the social welfare.
The devastating famine of Bengal was caused mainly due to lack of insight of the officials of East India Company. The officials of Company in Calcutta thus understood the importance of supervising of the revenue earning but the question of having incentives over the tax was ignored. Thereby the Governor General Warren Hastings introduced a system of five-yearly inspections and collecting the revenue.
The bad side of this system was the appointed tax farmers absconded with as much money as they could earn within this five years of period. The consequences were disastrous and the Parliament came to know about the corruption of East India Company. In 1784 British Prime Minister Pitt the Younger tried to alter the Calcutta Administration with Pitt`s India Act and in the year 1786 lord Charles Cornwallis was sent out to India to supervise the alteration.
In 1786 the Court of Directors of East India Company first proposed The Permanent Settlement Act for Bengal. The act was proposed as they were acting against the policy of attempt to increase the taxation of Zamindars. Between 1786 and 1790 the Governor General Lord Cornwallis and Sir John Shore (the later Governor General himself) debated over whether or not to introduce Permanent settlement Act in Bengal.
Shore`s point of argument was that the native Zamindars could not trust the permanent Settlement and it would take a long time for them to realize the genuineness of this act. But Cornwallis believed that they would immediately accept Permanent Settlement Act and start investing in improving their land. In 1790 the Court of Directors passed a ten-year (Decennial) Settlement Act to the zamindars, which was later changed to Permanent Settlement Act on 1793.
By Permanent Settlement act the security of tenure of the lands were guaranteed to the landlords and the process of paying tax was clear, In short, the former landholders and revenue intermediaries were benefited as their proprietorship on lands they held was assured. This also ensured the minimization of the fortune made on revenues earned by the Company officials. Smallholders were not allowed to sell their lands though their new landlords had no chance to deprive them.
The Permanent Settlement Act brought the improvement of the lands by the landowners as they took care of drainage and irrigation. Construction of roads and bridges were encouraged which were lacking in the state of Bengal. As the land revenue got fixed zamindars could securely invest the rest of the money to increase their income without the fear of tax increment. Corwallis made the motivation of the company clear by stating "when the demand of government is fixed, an opportunity is afforded to the landholder of increasing his profits, by the improvement of his lands." The earning of company was thus assured as there were no shortage in the revenues due to defaulting Zamindars, who fell into debts as they could not fix their budged due to fluctuation of revenue.
The Permanent Settlement Act had definitely some objectives in view, which can be summarized as :
Earning revenue could be made certain.
Ensuring a minimum amount of revenue
The system needed less supervision, so officials could be engaged in other spheres of administration
Forging an alliance between Zamindar class and British Colonial rulers.
The goals were achieved largely though not entirely. The immediate consequence of Permanent Settlement act was sudden as well as dramatic but there were also results, which were apparently not apprehended before. The Government tax demand was inflexible and the collectors of East India Company refused to make any adjustment during the time of drought, flood or other natural calamity. This was the drawback of the Permanent Settlement Act, that caused many Zamindars to fall into arrears. The Company`s policy was to put the land in auction, whose taxes are not fulfilled. This created a new market for the land. Many Indian officials of East India Company purchased this land. Thus a new class of bureaucrats was created who purchased lands those were under assessed and profitable. This led to two possibilities- one, to manipulate the system to bring to sale the lands they wanted specifically and the other was that the officials could be purchased by bribing them in order to get possession of a certain land. Thus this bureaucrats class became rich by unfair means. Thus, the Permanent Settlement Act led to commercialization of land, which did not exist in Bengal before. This in consequence created a change in social background. Those who were "lineages and local chiefs" turned to "under civil servants and their descendants, and to merchants and bankers." The new landlord class was generated who had no connection with their lands but managed the property through the managers.
There was some obvious influence of Permanent Settlement Act. The company hoped that Zamindar class would be their revenue generating machine as well as they would serve as intermediaries for the political aspect of their rule and would protect British Government in all their interests. However, in course of time it acted both ways. Zamindars were the natural protectors of the British rulers but when the British policy changed during mid -nineteenth century that interfered with social reform, some Zamindars put themselves in opposition.
The agreement of permanent Settlement Act only included the revenue earning but there was no mention of the use of the land. Thus to earn more money from the land, the Company officials and Zamindars insisted on planting Indigo and cotton rather than wheat and rice. This was the cause of many worst famines of the Bengal. Another disadvantage was creation of absentee Zamindar class who did not pay attention in the improvement of land.
Thus, by Permanent Settlement Act of 1793, Zamindar class became more powerful than they were in the Mughal period.