The Permanent Settlement was established as a land revenue system in Bengal in 1793. According to this, the East India Company would fix the revenue that each zamindar had to pay. The estates of those who failed to pay were auctioned. But the same system was not able to be adopted in other provinces. The revenue system that was introduced in the Bombay Deccan provinces was the ryotwari system.
Under the ryotwari system, the revenue collection and maintenance was directly settled with the ryot. The average income from each type of soil was assessed, the ability of the ryot to pay the stipulated amount of revenue was estimated and a proportion of the revenue was fixed as the share. Thus, the revenue to be paid was not fixed permanently.
But the revenue rates were exorbitant and in many places, the peasants abandoned their villages and migrated to new provinces. The issue of poor soil and constant fluctuations in rainfall was also another important issue. Thus the peasants were unable to pay the fixed revenue. But the British government did not pay any heed to the issue and continued to extract revenue. The falling agricultural prices in the 1832 and the famine of the 1832-34 again worsened the situation.
To pay the exorbitant revenue amount and to meet their daily requirements, the peasants started to borrow from the moneylenders. But they became indebted, the ryots found it difficult to pay the loans back. Their debt increased and because of the unpaid loans, their dependence on moneylenders also increased. Thus by the early 1840s, most of them were caught in a debt trap. The British realised the exorbitant nature of the revenue collected and reduced the rates of tax collection. The peasants expanded their cultivation and the agricultural prices started increasing. But to expand their cultivation, peasants needed more money. This again compelled them to take loans from the moneylenders.
Also, during the Civil War in the USA, India experienced a cotton boom. The peasants were introduced to unlimited credit from the moneylenders. But with the end of the war and the revival of the American cotton industry, the demand for Indian cotton reduced. The reduced demand for cotton and the disappearing land under cultivation. The moneylenders started demanding their loans back. This was the time when the peasants were suffering the worst with minimal income from which they had to pay revenue to the government. But the moneylenders were not ready to give loans to them as they did not have the confidence that they could repay the loan.
The money lenders were also not abiding by the traditional custom of not charging interest rates of loans that were higher than the principal amount. They had to charge only fair interest from the peasants. But this was blatantly broken by the moneylenders by charging interest rates that were twice or thrice than the principal. This forced the government to pass the Limitation Law in 1859. It stated that the loan bonds signed between the moneylenders and ryots would have a validity of only three years. This was intended to control the addition of interest over time. But the moneylenders did follow this and forced the ryots to enter into contracts after the passage of every 3 years. Thus the law was not successful.
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