How did a joint-stock limited company occupy the richest country in the world?

The ideas in the book are largely from William Darlymple's Anarchy. In fact, one can think of this as a summary of his primary thesis written by me.  This amazing talk also covers the same ground.

1750 to 1850 was a fascinating period in Indian history. A European company directly annexed large parts of India and indirectly administered the rest through puppet rulers. This was done with an army that was made up of 90% Indians funded by Indian bankers. How did this happen?

These companies were not new to the neighborhood; since the 1500s, they had profitably imported spices and textiles from India. However, they were non-entities in the political landscape. So, what changed in the latter half of the 18th century? 

Chance set the stage, but the profit motive wrote the script for India's future. Even the very presence of these companies in India is a tale of capitalism. For centuries prior, Europe had imported silks and textiles from India through the Silk Road. This meant prices were marked up repeatedly by all the intermediaries between India and Europe. The quest to find a direct sea route was, ultimately, a quest to cut out the middlemen. It was the profit motive—and the wind—that propelled the Portuguese Vasco da Gama and his ships to sail around the Cape of Good Hope to reach India. 

Fast forward to 1725. Mughal power had reached its zenith, extending practically over all of India. The last great Mughal emperor, Aurangzeb, was dead, and the throne was occupied by Muhammad Shah—a hedonist rather than a ruler. The Iranian leader, Nader Shah, seeking to legitimize his rise in Iran and fund his future wars, decided to loot the Mughal treasury. This singular historical event fragmented the Mughal Empire into a hundred pieces that jostled for power, making India unstable and unsafe. 

To safeguard their warehouses, profits, and trade against this rising instability, European companies raised private armies staffed by Indian sepoys. It was historical chance that this coincided with drilled field artillery and the flintlock had become standard in European warfare but were not yet widespread in India. These new private armies trained in modern military techniques emerged as the most powerful forces in India circa 1750. The profit motive, the fundamental law of capitalism, did the rest. It was only a matter of time before these powerful private armies, originally created for self-defense, realized they could make a profit by renting out these private armies out as mercenaries or used to run protection rackets. An excellent example is the role the French and British East India armies played in the Carnatic Wars and the succession battles of Arcot and Hyderabad. 

The profit motive soon made these traders turned mercenaries into conquerors when it became apparent that it was more profitable to cut the middleman (the local king) out entirely to annex and directly tax the people. The Battle of Plassey and the Battle of Buxar opened up revenue collection from the richest province in the world: Bengal. Owning Bengal provided a durable advantage even when Indian kingdoms (e.g., the Marathas and Mysore) closed the military gap. 

In 1775, it was a three-horse race, with the British East India Company, the Kingdom of Mysore, and the Maratha Confederacy locked in a winner-takes-all battle over India. With the wealth of Bengal serving as collateral, capitalistic Indian bankers and financiers increasingly backed the Company over local sovereigns. This superior liquidity allowed the Company to maintain larger, better-paid armies that local powers simply could not match, and they emerged as the ultimate winners. 

 It is worth noting that the Dutch were very dominant in the 17th century and the French East India Company were as dominant as the British till 1750. However, unlike the British East India Company, which was accountable to its shareholders and sought profit, the French enterprise was run by bureaucrats in Paris for whom prestige, rather than profit, was the guiding force. This meant temporary losses or loans reflected in the French government budget rather than spread across the joint stock shareholders of the British East India Company. This capped what the French East India could do while the British East India Company could simply borrow from the local markets to fund critical wars