QUESTION: In what way did the railways affect the growth of the

Indian economy? Would you agree that the railways were developed in
India primarily to serve colonial objectives and thus failed to play a
transformative role?

ANSWER:

The Indian Railways expanded rapidly to become, by 1910, the

fourth-largest in the world. The introduction of railways vastly
increased the speed and availability of transports and lowered
costs substantially, opening way for new opportunities for
profits. Regional specialization occurred and trade expanded on
a large scale.

Prior to the introduction of Railways, the internal trade was very

slow and rate of spoilage was high. These factors limited the
size of the markets and the size of the manufacturing units to
small-scale. There were a few exceptions like the cheap river
shipping from Bengal and the international value of cotton
during American Civil War. Apart from these few exceptions
there existed a high cost of transportation which made profit
margins negligible. In contrast, railways offered greatly reduced
transport costs as well as reliability and speed. Due to these
reasons the Government of India with the British government
decided to build an extensive railway system in India. They
encouraged the private investors by giving them subsidies
known as ‘The Guarantee’ which assured minimum of 5% of
return to the investors. They also took the aid of Princely sates,
provinces and district boards. Thus with a complex system of
ownership and management, Railway lines were constructed in
India.

Once in operation, the railways offered substantial advantages

over more traditional modes of transport such as pack-bullocks,
bullock-carts, camels,etc. By reducing transport costs, railways
allowed the resources that would have been used for transport to
utilise for other economic activities. After certain assumptions
for calculating the profits from railways like gauging the cost of
shipping goods by alternative means, it came out that if railways
has not existed it would have approximately costed rs. 1.2
billion extra for transportation. Even in regions which had
relatively light rail traffic and low profits, the savings in costs
were significant. Even though the estimates were based on
counterfactual techniques but the results of this analysis indicate
savings of such a magnitude that even if they are overestimated ,
the Indian economy must have received substantial benefits.

The impact of railways was felt in all sectors. People and goods
began to make extensive use of the railways. The reduction of
shipping costs was a major factor in changing India’s position in
International trade. Railways also helped Indian agricultural
commodities to become competitive internationally and made
possible an enormous expansion in exports of products. Before
railways only a very small proportion of agricultural output
normally was exported, but after railways, a good amount of
both food and non-food crops began to be shipped overseas. The
growth of exports was paralleled by a rise in imports. By the
arrival of railway, goods destined for foreign markets were
being imported to India. Therefore, Railways reshaped the
structure of India’s foreign trade.

Railways were also responsible for promoting internal trade.

They were also a key factor in transforming the structure of
prices in India. Before Railways, there was a high degree of
inter-regional price differences and the local prices of
agricultural commodities fluctuated with the changes in the local
price conditions. As the network of railways expanded, the price
differences between regions narrowed dramatically. The
agricultural sector of the economy was deeply affected by the
widening of markets. For the first time, prices in India were
susceptible to any significant shift in world prices. Indian
agriculture became linked to world trade cycles and farmers’
decisions about which crops to plant were affected by prices set
in international markets. Due to low transport costs, farmers
were able to sell their surplus outside local regions and a trend
towards regional specialization occurred. Commercialization
brought far-reaching changes to rural areas. The demand for
land increased and the growth of exports led to an increased
flow of income into rural area. When credit was short in supply,
moneylenders profited by lending to cultivators. The new flow
of income into rural areas was mostly spent on consumer goods.
The decline in transport costs also had an impact on the non-
agricultural sector but had a mixed effect on the economy by
expanding employment in some occupation and by declining the
same in some of them.

The railways were not solely made to serve colonial objectives

but yes, it does had a great positive impact for the Britishers as
well. Contemporary critics rightly believed that ‘the guarantee’
contributed substantially to the drain of funds from the sub-
continent. Companies because they were guaranteed, spent more
for construction per track kilometre than local conditions
warranted. Wasteful construction lowered companies actual
rates of returns and unnecessarily increased the subsidy and the
drain. Another factor contibuting to drain was the placement of
track. The track placement were not based on the commercial
potential of a region. The government of India followed a policy
that aimed at having lines widely spread across the country to
tackle natural calamities like famine. The government also had
military concerns. Railways were viewed as an instrument for
aiding the military in controlling the population and for
defending the frontier. Therefore the lines, due to strategic
reasons avoided the central buisness routes and passed through
the outskirts. This allowed the lines to be defended from mobs
easily but the needs and demands of potential customers were
disregarded. Thus, the drain was increased by the guarantee.

There was the absence of a basic structural change in the

economy. The financial capital used to build railways came
from britain as well as the equipments and labour. The
government of india did little to aid or stimulate the
development of heavy industries or management skills within
india as Britishers were more interested in Britain’s industry and
financial institutions developments rather than India’s. The
government of India urged companies to ‘buy british’.
locomotives are a case in point. India’s railway workshop
proved capable of manufacturing competitively-priced
locomotives but the Britishers exported them from their own
country. The spread effect of the industry which would have
benfitted India, benefited British economy. Coal is also an
example of the same. The needs of the railways stimulated coal
production but due to the cheap transportation cost of coal
through waterways, most of the coal was imported from britain
to india.

The minimal linkages from the railways experienced by India’s

financial sector and labour market as well. India had low rates of
savings and poorly developed mordern capital markets, so the
companies looked to Britain for capital to build railways
benefiting the British economy. The companies were mostly
british that invested in railways and due to the minimum
intervention of the Government and the limited competition,
there was creation of monopoly like conditions and companies
were able to create a good amount of profit which was a major
cause of drain.

In the limited economic development that India experienced

before Independence, railways unquestionably played a major
role. Railways led to increased agricultural output, the growth of
mordern industry and mining,new jobs- although many jobs
were lost- the redistribution of the urban population and
numerous other economic changes. Yet in the long run, these
changes did not alter the basic structure of the economy and a
major play was on the part of enhancing the British Economy by
the drain and British investments.