Railways in Colonial India: An Economic Achievement?

Railways were the most important infrastructure development in India from 1850 to 1947. They were inter-connected with all aspects of Indian society. In terms of the economy, railways played a major role in integrating markets and increasing trade. Domestic and international economic trends shaped the pace of railway construction and the demand for the important traffic flows to the ports. In terms of politics, railways shaped the finances of the colonial government and native states. At the same time, Indian political institutions influenced railway ownership and policy, which in turn influenced railway performance. As the twentieth century progressed, railways became a force for independence and democracy. In this chapter we focus on the development and organization of the network, the trends in railway performance, the effects of ownership and regulatory policies, and the impact of railways on the Indian economy. A broader historical and social science analysis of Indian railways is beyond the scope of the chapter. For such an approach, we direct the reader to Kerr (2007). We make several general points below. First, the Government of India had a strong influence on railways from the beginning, but the Government’s role increased over time. Railways were partially nationalized between 1880 and 1908 as the Government of India assumed a majority ownership stake in the former guaranteed railway companies. Complete nationalization occurred between 1924 and 1947 as the colonial government assumed full control over operations. Second, the performance of Indian railways can be classified into two periods: pre-1920 and post-1920. There was a trend to higher output, productivity, and profits between 1850 and 1919, but after 1920 there was a leveling off. Fares and freight charges exhibit similar patterns, declining from 1850 to 1919 and then rising somewhat until 1940. Third, dividend guarantees were a key feature of the early era of private ownership. We argue that guarantees weakened incentives to lower costs, but they also encouraged rapid railway development. We also review the relationship between Government of India ownership and operating efficiency. Perhaps surprisingly there is evidence that state ownership