The rule of the Nizams was feudalistic and despotic in its nature. Forty percent of the land was under the Jāgirdarī system. The Nizam and his relatives owned large portions of land called ‘Surf-e-khas’ and ‘Pāigas’. The Nizam himself owned 10% of the land. The remaining land was under the Government called Diwani land. The rural economy was dominated by landlords. Though there was a Ryotwari system in force, the peasants were practically reduced to tenants and were heavily taxed. The level of exploitation was high and people suffered economically. The poverty in the rural Hyderabad was abject. Unable to bear the Nizam’s severe exploitation, the tribals revolted; notable among them was Ramaji Gond’s Revolt between 1853 and1860. On the other hand, the Nizams, were under constant pressure from the British to pay more taxes. To offset the revenue deficit, the Nizams borrowed money indiscriminately leading to a severe financial crisis.
In 1853, Salarjung I was appointed the Premiere and introduced massive administrative, revenue and judicial reforms as the administration and the economy of Hyderabad were in a deplorable state. He set up schools, including for girls across the state, and an engineering college with Urdu as the medium of instruction. However, these initiatives made modern education inaccessible to a majority of the population who spoke Telugu, Marathi and Kannada. He further introduced postal and telegraph services, and entered into an agreement with the British to construct railroads. Though he tried to transform a medieval and moribund Hyderabad state into a modern one, his reforms met with little success. Hyderabad remained medieval at large despite these reforms in the fields of education, health and administration as a majority of the population were deprived of the benefits.
Nizam Mir Mehboob Ali Khan Asaf Jah VI ascended the throne in 1884 and appointed Laiq Ali Salarjung II as the Premiere. Asaf Jah VI introduced Urdu as the sole Official Language of Hyderabad replacing Persian. This move inconvenienced both Muslim aristocracy and Hindu nobles who were already aggrieved with the reforms of Salarjung I, particularly with his administrative and revenue reforms. The introduction of Urdu as the official language also opened the floodgate to large-scale influx of the north Indian Muslims into Hyderabad, who quickly grabbed the vital positions of power and administration in the State due to their western education and knowledge of both English and Urdu. Subsequently, Urdu was made the sole medium of instructions in schools, resulting in the marginalization of Telugu, Marathi, Kanada and other native languages.
The Nizam Mir Osman Ali Khan had a large family and retinue, occupying hundreds of magnificent palaces and ‘kothis’ spread over his vast dominion. He was - according to Time Magazine of 1937 - the richest man in the world while his people were placed in abject poverty.