Railways in Colonial India: An Economic Achievement?
39 Pages Posted: 3 Jun 2012 Last revised: 19 Jun 2012
Date Written: May 1, 2012
This chapter reviews the economic performance of Indian railways in particular 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. We highlight four main points. First, the Government of India had a strong influence on railways from the beginning, but the Government’s role increased as railways were gradually nationalized over time. 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 review the relationship between Government of India ownership and operating efficiency. Perhaps surprisingly we find that state ownership reduced operational costs. Finally, there is clear evidence that railways increased market integration and raised incomes, but the magnitude of the effect and the precise mechanisms are still in doubt.
Keywords: Colonial India, railways, state ownership, productivity, social savings
JEL Classification: N45, N75, O14, L5, L92
Suggested Citation: Suggested Citation