The subsidiary Alliance System was an agreements (sanad) between the British and the local rulers.
This development created what came to be called the Native States, or Princely States.
The Subsidiary Alliances system was also introduced by Lord Wellesley in and after 1798.
The British, under the subsidiary alliance system, agreed to protect the Indian rulers against external threats and internal disorder but, in return, the Indian rulers who accepted the Subsidiary Alliance system were to agree to the stationing of British contingent for whose maintenance they would pay a subsidy to the British.
The ruler under the system of alliance could neither enter into alliance with any other power nor fight a war without prior permission from the British.
A British resident was stationed at these ruling states that had the authority to interfere in state politics.
With the help of this system the British were able to maintain large forces without spending.
The Nizam of Hydrabad was first to enter into a subsidiary alliance with the English in 1798.
He was forced to replace the French officers from his court and put English officers in their place.
He also granted the territories of Bellari and Cudappah to British for the maintenance of the army.
The subsidiary alliances created the Princely States (or Native States) of the Maharajas and the Nawabs, prominent among which were: Cochin (1791), Jaipur (1794), Travancore (1795), Hyderabad (1798) and Mysore (1799).
The annexed regions included the North Western Provinces (comprising Rohilkhand, Gorakhpur (1801), Delhi (1803), and Sindh (1843).
Punjab, Northwest Frontier Province, and Kashmir, were annexed after the Anglo-Sikh Wars in 1849.
Kashmir was sold under the Treaty of Amritsar (1850) to the Dogra Dynasty of Jammu, and thereby became a princely state.
In 1854 Berar was annexed, and the state of Oundh two years later.
The Main purpose of the subsidiary alliance system was—
—to expand the British Empire in India
—to bring new territories under its control and
—to decrease the French influence
Punjab was under the rule of Maharaja Ranjit Singh who had united the various Sikh misls into one state.
He had established a modern administrative system.
His army was the second largest modernized regular army in Asia after the British army.
The East India Company maintained friendly relations with Ranjit Singh.
But just within one decade of his death in 1839, two Anglo-Sikh wars were fought and in 1849 Punjab also became part of the British India.