The uprising precipitated a dramatic reappraisal of British policy--in effect a retreat from the reformist and evangelical zeal that had accompanied the rapid territorial expansion of British rule. This policy was codified in Queen Victoria's proclamation of 1858 delivered to “The Princes, Chiefs, and Peoples of India”. Formal annexations of princely states virtually ceased, and the political boundaries between British territories and the princely states became frozen. By this time the British territories occupied about 60 percent of the subcontinent, and some 562 princely states of varying size occupied the remainder. The relationship the British maintained with the princely states was governed by the principle of paramount, whereby the princely states exercised sovereignty in their internal affairs but relinquished their powers to conduct their external relations to Britain, the paramount power. Britain assumed responsibility for the defense of the princely states and reserved the right to intervene in cases of mal-administration or gross injustice.

Despite Queen Victoria's promise in 1858 that all subjects under the British crown would be treated equally under the law, the revolt left a legacy of mistrust between the ruler and the ruled. In the ensuing years, the British often assumed a posture of racial arrogance as "sahibs" who strove to remain aloof from "native contamination." This attitude was perhaps best captured in Rudyard Kipling's lament that Englishmen were destined to "take up the white man's burden."

As a security precaution, the British increased the ratio of British to Indian troops following the mutiny. In 1857 British India's armies had had 45,000 Britons to 240,000 Indian troops. By 1863 this ratio had changed to a "safer mix" of 65,000 British to 140,000 Indian soldiers. In the aftermath of the revolt, which had begun among Bengalis in the British Indian Army, the British formed an opinion, later refined as a theory, that there were martial and nonmartial races in India. The nonmartial races included the Bengalis; the martial included primarily the Punjabis and the Pathans, who supported the British during the revolt.

The transfer of control from the British East India Company to the British crown accelerated the pace of development in India. A great transformation took place in the economy in the late nineteenth century. The British authorities quickly set out to improve inland transportation and communications systems, primarily for strategic and administrative reasons. By 1870 an extended network of railroads, coupled with the removal of internal customs barriers and transit duties, opened up interior markets to domestic and foreign trade and improved links between what is now Bangladesh and Calcutta. India also found itself within the orbit of worldwide markets, especially with the opening of the Suez Canal in 1869. Foreign trade, though under virtual British monopoly, was stimulated. India exported raw materials for world markets, and the economy was quickly transformed into a colonial agricultural arm of British industry.