These military operations added force to the conviction which Dalhousie had formed of the need of consolidating the Company's ill-knit possessions, and as a step in that direction he decided to apply the doctrine of "lapse," and annex any Hindu native states, created or revived by the grants of the British government, in which there was a failure of male lineal descendants, reserving for consideration the policy of permitting adoptions in other Hindu chiefships tributary and subordinate to the British government as paramount. Under the first head he recommended the annexation of Satara in January 1849, of Jaitpur and Sambalpur in the same year, and of Jhansi and Nagpur in 1853. In these cases his action was approved by the home authorities, but his proposal to annex Karauli in 1849 was disallowed, while Baghat and the petty estate of Udaipur, which he had annexed in 1851 and 1852 respectively, were afterwards restored to native rule.
Other measures with the same object were carried out in the Company's own territories. Bengal, too long ruled by the governor-general or his delegate, was placed under a separate lieutenant-governor in May 1854; a department of public works was established in each presidency, and engineering colleges were provided. An imperial system of telegraphs followed; the first link of railway communication was completed in 1855; well-considered plans mapped out the course of other lines and their method of administration; the Ganges canal, which then exceeded "all the irrigation lines of Lombardy and Egypt together," was completed; and despite the cost of wars in the Punjab and Burma, liberal provision was made for metalled roads and bridges. The useless military boards were swept away; selection took the place of seniority in the higher commands; an army clothing and a stud department were created, and the medical service underwent complete reorganization.
"Unity of authority coupled with direct responsibility" was the keynote of his policy. In nine masterly minutes he suggested means for strengthening the Company's European forces, calling attention to the dangers that threatened the English community, "a handful of scattered strangers"; but beyond the additional powers of recruitment which at his entreaty were granted in the last charter act of 1853, his proposals were shelved by the home authorities, who scented no danger and wished to avoid expense. In his administration Dalhousie vigorously asserted the control of the civil government over military affairs, and when Sir Charles Napier ordered certain allowances, given as compensation for the dearness of provisions, to be granted to the sepoys on a system which had not been sanctioned from headquarters, and threatened to repeat the offence, the governor-general found it necessary to administer such a rebuke that the hot-headed soldier resigned his command.