In 1600, the East India Company acquired a charter from the ruler of England, Queen Elizabeth I, granting it the sole right to trade with the East. This meant that no other trading group in England could compete with the East India Company. With this charter the Company could venture across the oceans, looking for new lands from which it could buy goods at a cheap price, and carry them back to Europe to sell at higher prices.
The Company did not have to fear competition from other English trading companies. Mercantile trading companies in those days made profit primarily by excluding competition so that they could buy cheap and sell dear.
The royal charter, however, could not prevent other European powers from entering the Eastern markets. By the time the first English ships sailed down the west coast of Africa, round the Cape of Good Hope, and crossed the Indian Ocean, the Portuguese had already established their presence in the western coast of India and had their base in Goa.
In fact, it was Vasco da Gama, a Portuguese explorer, who had discovered this sea route to India in 1498. By the early seventeenth century, the Dutch too were exploring the possibilities of trade in the Indian Ocean.
Soon the French traders arrived on the scene. The problem was that all the companies were interested in buying the same things. The fine qualities of cotton and silk produced in India had a big market in Europe. Pepper, cloves, cardamom, and cinnamon too were in great demand.
Competition amongst the European companies inevitably pushed up the prices at which these goods could be purchased, and this reduced the profits that could be earned. The only way the trading companies could flourish was by eliminating rival competitors.
The urge to secure markets, therefore, led to fierce battles between the trading companies. Through the seventeenth and eighteenth centuries, they regularly sank each other’s ships, blockaded routes, and prevented rival ships from moving with supplies of goods.
Trade was carried on with arms and trading posts were protected through fortification. This effort to fortify settlements and carry on profitable trade also led to intense conflict with local rulers. The company, therefore, found it difficult to separate trade from politics.
East India Company begins to trade in Bengal
The first English factory was set up on the banks of the river Hugli in 1651. This was the base from which the Company’s traders, known at that time as “factors”, operated. The factory had a warehouse where goods for export were stored, and it had offices where Company officials sat.
As trade expanded, the Company persuaded merchants and traders to come and settle near the factory. By 1696 it began building a fort around the settlement. Two years later it bribed Mughal officials into giving the Company zamindari rights over three villages. One of these was Kalikata, which later grew into the city of Calcutta or Kolkata as it is known today. It also persuaded the Mughal emperor Aurangzeb to issue a Farman granting the Company the right to trade duty-free.
The Company tried continuously to press for more concessions and manipulate existing privileges. Aurangzeb’s Farman, for instance, had granted only the Company the right to trade duty-free. But officials of the Company, who were carrying on private trade on the side, were expected to pay duty. This they refused to pay, causing an enormous loss of revenue for Bengal.