Defects of subsidiary system:
The immediate effect of the establishment of subsidiary forces was the introduction of anarchy because of the unemployment of thousands of soldiers sent away by the Indian princes. The freebooting activities of disbanded soldiers were felt much in central India where the menace of Pindaris affected the people.
Further, the subsidiary system had a demolizing effect on the princes of the protected states. Safeguarded against external danger and internal revolt, they neglected their administrative responsibilities. They preferred to lead easy-going and pleasure-seeking lives. As a result mis- government followed. In course of time, the anarthy and misrule in several states had resulted in their annexation by the British. Thus, the subsidiary system proved to be a preparation for annexation.
Furthermore, the British collected very heavy subsidies from the protected princes and this had adversely affected their economy.