Essay on Railways in India

Essay on Railways in India!

Essay Contents:

1. Essay on the Railways under the Plans
2. Essay on the Effects of Railway Development
3. Essay on the Economic Benefits of Railways
4. Essay on the Railway Rates in India
5. Essay on the Railway Finances in India

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Essay # 1. Railways under the Plans:

On the eve of India’s First Five Year Plan, Indian railways were in a state of serious disrepair. This may be seen from the fact that 1640 locomotives, 5120 coaches, and 25,000 wagons were due for replacement. There were also large arrears of renewals of track while speed restrictions were in force over large parts.

The main task of the First Plan, therefore, was “the rehabilitation of the railways which had been subjected to severe strain on account of the war and the Partition.” In order to fulfill this and other tasks, the railways spent about Rs. 423 crores during the plan of which rolling stock alone accounted for Rs. 242 crores.

While meeting the large requirements of repair and renewals with imported equipment, steps were also taken to make the railways self-sufficient in respect of even larger requirements during the subsequent plans. Towards this end, a locomotive factory at Chittaranjan and a coach-building factory at Madras were set up in the public sector.

Along with the programme of rehabilitation for which major portion of allotment was utilised, a number of works including doubling of track, yard modeling’s, new crossing stations, additional loops, improved sig­nalling devices and increased repair facilities were also undertaken to cater to increased traffic demands.

The main objectives of the Railway’s Second Plan, during which an expenditure of Rs. 1043.69 crores, was made, were:

(1) To continue the rehabilitation of track, bridges, and rolling stock;

(2) To create adequate capacity to suit the planned requirements of heavy industries like coal, steel, cement, and other com­modities.

The three steel plants set up and those whose capacity had been expanded, had to be regularly supplied with their raw material requirements, including coal, all by rail route. For this purpose, it was necessary to create large additional capacity in the eastern region.

Accordingly, all the loops on the trunk route were brought up to the standard length and heavier freight trains hauled by double-headed diesel or electric locomotives were introduced. In addition to about 1512 kms of doublings, about 1311 kms of new lines, mainly confined to the requirements of coal and steel, were also completed and opened during the plan.

Railway’s Third Plan was framed to meet an estimated freight traffic of 245 million tons and 15% increase in passenger traffic over the level of the Second Plan. Even though initially allotted 1325 crores which was later raised, actual expenditure during the plan came to Rs. 1685.8 crores.

The increase was largely due to rise in prices of materials of construction, government levies, increase in the cost of labour etc., and the additional construction undertaken in the Assam region to meet strategic needs.

Apart from opening 1801 kms of new lines and doubling of 3228 kms of the track, expansion of yards, introduction of modern signalling techniques, all of which went into creating additional capacity, the main task of the railways during the Third Plan was the modernisation of traction, including a switchover from steam to diesel and electric traction.

This was necessary in view of the rapid industrialisation of the country with higher production targets in basic industries.

From a modest beginning made in the Second Plan, when only 5.3% of traffic was carried on diesel and 3.6% on electric traction, modernisation made rapid strides so that by the end of 1965-66, 20.6% of the traffic was carried on diesel and 12.4% on electric traction.

And with a view to providing for even larger requirement of diesel and electric traction in the future, a diesel locomotive factory was set up at Varanasi, while Chittaranjan works were equipped for the manufacture of electric locomotives also.

Taking the three plans as a whole, railways made significant progress in several directions. The capital at large increased more than three times from Rs. 832.2 crores to Rs. 2680.3 crores; freight traffic rose by more than 2 times from 93 million tons to 204 million tons and passengers originating increased by 60% from Rs. 1307.8 million to 2104 million.

Gross traffic receipts went up from Rs. 263 crores to Rs. 733.6 crores —an increase of 179%.

Significantly, the route kilometers increased by a bare 6% from 54932 in 1950-51 to 58399 in 1965- 66 and this despite investment of over Rs. 3000 crores. Of course, it can be argued that most of the required railway network had already been laid by the time the British left and that, therefore, the problem was one of carrying more of passengers and goods over the same route net work rather than expanding the mileage.

There is certainly force in the argument but it may be pointed out that large areas of the country in Rajasthan, Madhya Pradesh, Orissa, Maharashtra, and Andhra Pradesh were still without the necessary railway facilities. Also, the railways were still characterised by a variety of gauges which enormously added to the cost of railway transport.

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Essay # 2. Effects of Railway Development:

The Railway Development had far-reaching effects on the life and economy of the Indian people. In the official view, “the benefits conferred by railways were at all time great” and that they were “an all powerful agent in the promotion of the material and social advancement of the people.”

Indian leaders, on the other hand, holding that railways had proved detrimental to India’s industrial activity, condemned them ‘as a many—sides evil’ which prevented “a healthy material advance along normal lines.” Let us consider the facts.

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Essay # 3. Economic Benefits of Railways:

The value of railways was best appreciated in times of famines. The major cause of famines in the past was the absence of an easy and quick means of transporting food from the surplus to the scarcity areas. Railways changed the entire picture.

Being quick, food could now be transported from one part to another and relief operations conducted with greater efficiency. That is why the Famine Commission of 1880 found the highest famine-mortality in areas where transport facilities were most scanty. It, therefore, pleaded for the immediate construction of new lines including 3000 miles for ‘protective purposes.’

The railways greatly facilitated the commercialisation of agriculture. They broke the traditional self-sufficiency of the Indian village and brought it face to face with markets inside and outside the country. It remained no more necessary for the cultivator to meet his varied needs from his own land.

Instead, he began to specialise in particular crops and turned to the newly developed markets for the disposal of his produce and purchase of his requirements.

Railways brought about the expansion of the trade of Indian —internal as well as external. Rice and wheat, especially wheat, began to be exported in larger quantities while the exports of tea, coffee, Hides and skins, oil-seeds, raw-jute, and raw cotton grew rapidly. At the same time, railways helped foreign machine- made goods to penetrate into the interior of the country.

As a result, the total value of India’s foreign trade, which amounted to a bare Rs. 32 crores in 1851-52, rose to Rs. 180.43 crores in 1900-1 —an increase of more than 5.5 times. Railways gave a large impetus to internal trade as well. A network of markets grew up all over the country and minor food grains like millets and pulses began to emerge as important commodities in the internal trade of the country.

Railways also helped in the process of industrialisation of the country. The plantation industries, the coal industry, the cotton and jute mill Industries developed, Pari Passu, with the construction of railways. Coal industry actually began with railway development. The railways not only created a demand for Indian coal but also made coal available in the far flung parts of the country.

Similarly, railways helped in the rise of the cotton mill industry at Bombay by bringing quick and cheap supplies of raw-cotton from the interior. The Iron and steel industry received a great stimulus as railways began to purchase rails and other railway material in India.

The railways benefitted the government, both directly as well as indirectly. With the beginning of the 20th century, railways began to yield profits and were able to directly contribute to the revenues of the government.

Indirectly, the ex­pansion of railways and the consequent development of trade and industry lent buoyancy to government revenues. The gross revenues of India increased from Rs. 61.97 crores in 1877-78 to Rs. 114.51 crores in 1901-1902.

Railways were instrumental in the leveling of prices, especially of food grains, throughout India. Before the commencement of the railways, areas of acute scarcity and plenty co-existed side by side with the result that prices varied and fluctuated widely.

According to Prof. Brij Narain, in 1860, barley was sold in Panipat (Haryana) at 18 seers a rupee but, about 150 miles away, in Mamdot (Punjab) it sold at 101 seers a rupee.Railways abolished the distance barrier and transformed the country into one big market. It became possible now to move supplies quickly from one to another place thereby reducing wide price-disparities and violent fluctuations.

Another very significant effect of railway development was the creation of employment opportunities, especially for the agricultural labourers and the poorer classes of cultivators who were able to supplement their earnings in the off-season by working on railway construction. “Acute immobility of labour and serfdom wire now partially broken and a sense of dignity in employment was brought to railway workers.”

Apart from employment offered in construction, railways directly engaged lakhs of people as clerks, accountants, firemen, and subsequently, even in senior capacities. In 1965-66, 13,52,302 persons were employed by the railways in various capacities.

Political Effects:

Railway converted India from ‘a mere geographical expression’ to a ‘well-knit and consolidated political unit.’ Very long distances and the absence of transport facilities had been the major impediments in the growth of cultural and political cohesion in the country.

By removing these obstacles, railways led to the establishment of a modern central administration. Travel, being cheap, became frequent. This, in turn, promoted a sense of national unity.

The efficiency of the civil administration improved immensely for now it became possible for the government to watch development in different parts of the country and take prompt appropriate measures to deal with them.

Railways gave valuable assistance in transporting men and material in the First and Second World Wars. The Kashmir and Hyderabad operations, after Independence, once again emphasised the important role of railways in the scheme of national defence.

Social Effects:

Railways were, so to say, the evangelists of a new social order in India. They carried new light to the superstitious, custom-bound, conservative villages.

Frequent travelling and inter-mixing, which became unavoidable in railway travel, broke the caste barriers or at least created a greater tolerance of lower castes. In the words of Sanyal , “Social relationships between persons living widely apart multiplied, and parents had no hesitation in marrying their children at distant places.”

Adverse Effects:

However, railways were not an unmixed blessing. As Thorner explains, they were built for strategic and commercial reasons and had no organic relation­ship with the growth-needs of India. By enabling the cheap machine-made products of England to undersell in India, railways brought about the decline of the in­digenous handicraft industries ‘in an astonishingly short space of time’.

According to G.S.Iyer, “every additional mile of railway constructed in this country drove a fresh nail into the coffin of one industry or another.”

One can’t accept Dr. Ansteys assertion that “railways can’t, by themselves, be held responsible for the destruction of these industries — the indigenous in­dustries suffered the most during the first three quarters of the 19th century —that is before the railway network had opened up India.”

While it is true that the decline of cottage industries had started before the railway era began, but this process was slow, confined to certain industries only and had not spread to the interior of the country. Railways, by opening up the country- side to foreign manufac­turers, hastened the final eclipse of certain industries and directly killed the Iron smelting, Glass, and paper industries.

While the railways enabled the cheap machine-made goods of England to undersell and thus destroy the indigenous handicraft industries, they did not usher in the Industrial Revolution experienced by Japan, the United States of America and Western Europe. These countries could develop their Iron and steel and other basic industries because railway construction generated the demand for their products.

In India, however, railways failed to bring about the ‘Take-off’ despite the fact that their construction, involving enormous investment in a relatively short period of time, was in the nature of a ‘Big push.’ There are several reasons for it.

The first and fore-most was that complementary investments in coal, Iron and steel, machinery manufacture, which Marx thought would follow railway development, were extremely slow or were not allowed to proceed at all.

Railway development combined with the growth of the jute industry did promote a slow development of a coal mining industry. But that was about all. No effort was made to encourage the steel industry.

Even attempts made by Indians were outright discouraged. Nor was any progress made towards the manufacture of locomotives and other basic railway equipment except the partial fabrication of wagons and coaches for nearly a century after the establishment of the railway system. The authorities, instead, preferred to import all their requirements from England.

Only a fraction of expenditure was spent in India, and the firms, which benefitted, were almost always controlled by Europeans. In the words of Beumont, “Next to Australia, India was the largest customer we (England) had for locomotives. We supplied all the material and all the equipment and built the railways—.”

Therefore, the Multiplier Effects of railway investments in terms of income, employ­ment, technical knowledge, and growth of external economies were largely exported back to England. That is the reason why rail building in India failed to give birth to a flood of ‘satellite innovations’ and destroyed more occupational opportunities than it opened up.

Fearing that railways might after all encourage Indian industries, a complex system of rates and fares was introduced which stimulated goods traffic from sea-ports into the interior but hampered internal trade and industry.

Rates were lower on goods to and from the ports and high on goods traffic inside the country. Even as late as 1918, the Indian Industrial Commission quoted the case of hides: the port rate was 50% less than internal rates which discouraged Indian Tanning industry.

Thirdly, the trunk lines ran from the big sea-ports to regions rich in raw-materials which also became markets for Britain’s manufactured goods. Built to exploit the country’s natural resources, such railway construction “aided Europe in becoming the manufacturer of India rather than India in becoming the manufac­turer for her self.”

The fourth was the multi-gauge railway system which impeded traffic between the provinces. The trunk lines were often of one standard gauge while branch lines were of another.

A commodity, moving from one part of the country to another, had to be transferred several times, and each transfer involved the payment of a high tariff. It was often cheaper, as a result, to import coal from Britain than to bring it from a neighbouring province.

The decline and decay of cottage industries rendered a large mass of people unemployed who shifted to agriculture, thereby leading to increased ruralisation of the country.

Famines, therefore, brought hunger and suffering to ever increasing numbers which necessitated larger expenditure on famine relief. Thus, railways, though helpful in preventing the occurrence of famines, were also responsible for increasing the volume and expense of the famine-relief work.

Railways encouraged the export of food-grains from the country. The old practice of storing grains as insurance against future calamities was given up. Also, by encouraging the cultivation and export of commercial crops, railways were responsible for diverting land from food to cash crops thereby causing shortage of food in the country.

A major point of criticism against Indian railways was that they were in­strumental in draining wealth out of India. They were built with foreign capital and administered by a host of foreign employees. This involved remittance of large funds in the form of interest, salaries, profits, payments for the important materials and railway stores.

Payments on account of interest were common to other countries also but extra charges were peculiar to India alone. According to Tiwari, total loss borne by the state, on account of the old guaranteed com­panies at 4% per annum compound interest amounted to Rs. 300 crores up to 1919-1920.

One dangerous political consequence of railway construction was the crea­tion of a powerful foreign aristocracy of shareholders whose interest conflicted with those of the Indian nation. In this sense, Railways added to the already powerful foreign vested interests which often operated to the disadvantage of India.

Railway construction led to the depletion of the meagre forest resources of the country. Trees were recklessly cut denuding large areas of all vegetation. This created the problem of soil erosion.

The railway tracks, at places, were built at a higher level which obstructed the free flow of water. This caused floods at certain places. The construction of railways aggravated malaria in certain districts, although there is a difference of opinion regarding its cause. Popular view is that pits dug for embankment purposes later got filled with rain water.

These small pools of stagnant water fostered the breeding of mosquitoes. Dr. Anstey, however, believes that collies, employed for railway construction, brought new strains of malaria to which the local popula­tion was less immune.

Railways, by encouraging the import of cheap luxury articles, greatly changed the spending habits of the Indian peasants. Their expenditure increased beyond their earning capacity with the result that savings disappeared and many got involved in debt.

By opening up new employment opportunities at far off places and by facilitat­ing mobility of labour, railways dealt a severe blow to the joint family system which had held together the Hindu Society for a long time. People were no longer inclined to stay together and railways enabled them to move out easily and quickly, to wherever employment was available.

According to Gadgil, “one of the most important factors determining the growth of towns in India was railway construction,” While they created new centres of trade as well as enhanced the importance of the old once, railways at certain places bypassed the old towns whose importance declined.

The advent of the railways dealt a severe below to inland navigation also. Even the Industrial Commission was forced to admit that “the vested interests of the railways — prevented water-ways in India from receiving the attention that has been given to them in other countries with such satisfactory results.” The importance of the once famous river port of Broach declined as a result of railway development.

Perhaps, some of the adverse consequence were the ‘inevitable price’ of railway development. They could not have been avoided although their injurious effects could have been minimised by a suitable policy. And it is here that the foreign government totally failed the country.

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Essay # 4. Railway Rates in India:

The rates and fares which the railways charge have a vital bearings on the overall economic development of the country as well as their own financial position. Un-reasonably high rates discourage traffic and divert it to other modes of transport, raise costs of production, check development, and distort the location as well as the pattern of industries.

It is, therefore, necessary that the rates and fares are carefully designed so as to ensure a sound financial position for the railways and rapid economic development of the country. The structure of railway rates in India before 1948 did not satisfy this criterion and, therefore, was subjected to severe criticism.

The most striking feature of the railway rates was their ‘individualistic’ char­acter. Each railway operated as an independent commercial unit guided solely by its own individual interests. Accordingly, each railway company fixed its charges according to its own convenience without any consideration for the economic interests of the country as a whole.

Even those lines, which were directly managed by the Railway Board, were treated, in matters of rate-making, as separate systems. For example, the G.I.P. railway rate on cotton from Pachora to Bombay, a distance of 232 miles, was about 0.95 rupee per maund whereas the B.B.C.I. railway rate from Itola to Bombay, 234 miles, was only about 0.44 rupee per maund.

Such a policy might have had some justification when the Indian railways were owned and managed by companies, and the government could not exercise adequate control over their rates policy. Its continuance, however, after the railways had come under the control and management of the State, was hardly defensible.

This policy affected internal trade in particular because while the ports were linked with the inland trade centres by direct lines of usually the same company, the long distance internal traffic as a rule had to pass over more than one railway and was, therefore, made a victim of the ‘complicated and irrational’ rate structure of different railway companies.

This discouraged the setting up of industries away from the sources of raw materials even if other factors favoured it.

What is more, the rating system was very complicated and irrational. Statistical data was often not available and, therefore, no railway ever made an attempt to scientifically group the commodities into different classes and simplify the rate structure.

Every railway had its own schedule with the result that the same com­modity found itself placed in a different schedule on different railway systems. Grains and pulses were, for example, placed in different schedules and had to pay different rates in different parts of the country.

Another complaint was that the rates fixed were very high. The companies never cared to create or attract traffic as was done in America; instead, they tried to earn maximum return “with the minimum of carriage and effort, conveying a small volume of high class traffic at high rates.” Several committees highlighted this fact.

As early as 1856-57, Col Pears strongly refuting the arguments of the railway companies who were trying to raise their charges, held that the main reason for the disappointing traffic on the railways was that the charges were not sufficiently attractive. In 1872, Mr. Randal attributed the failure of traffic to rise up to expectations to the heavy fares.

To many, the rates charged by the Indian railways did not seem high. The Government, in fact, claimed that they were the lowest in the world. Even Mr. Robertson, reporting in 1903, found that, “in money terms, rates in India were lower than in England.”

However, considering the actual circumstances of the two countries, the low value of the commodities, long distance over which they were conveyed and the general poverty prevailing in the country, even he felt compelled to recommend a 30-60% reduction in goods-rates and 18-40% in passenger fares. It need not be emphasised that high rates imposed an undue strain on costs of production.

The Government, under pressure from England, did periodically demand a reduction in rates and freights. In the 40’s and 50’s of the last century, England was crying aloud for the cotton of India. In the 70’s and 80’s, the demand was made for the cheap supply of India wheat for the markets of Europe.

The American railway rates were much cheaper and, consequently, those interested in the export of Indian wheat raised a demand for special wheat rates. The railways obliged by lowering their freight charges in respect of agricultural commodities such as rice, wheat, oil-seeds, raw cotton and jute.

The British manufacturer, who needed cheap supplies of raw materials, benefitted but at the expense of a lop sided development of the Indian economy. As Anstey explains, India became “an exporter of food stuffs, raw materials and plantation products, when she depended upon imports for a large part of her clothing and for an immense range of misce­llaneous manufactures.”

The most serious objection was that the rates were ‘inequitable’ unfair and unjust.’ As the Fiscal Commission (1921 — 1922) pointed out, they were framed to encourage traffic to and from the ports at the expense of internal traffic. This, in effect, meant an encouragement to the export of raw-materials from India and the import of foreign manufactured goods.

Indian industries suffered the double handicap of having to pay more for the transport of raw-materials obtained from various parts of India and also for the distribution of their finished goods in various inland markets. Foreign manufacturers, using Indian raw-materials and selling in Indian markets, enjoyed an advantage in so far as they had to pay less for transportation charges.

It, in effect, “amounted to Indian manufacturers subsidizing their foreign competitors.” To take an example from the cotton trade, the rate charged from Multan to Karachi, a distance of 576 miles, was Rs. 1.05 per maund while from Multan to Delhi, a distance of 454 miles, a higher rate of Rs. 1.19 per maund was charged.

In sugar, special rates were quoted for imported sugar from ports, irrespective of weight and at railway risk. Distance for distance, these rates were, in many cases, lower than the rates even for wagon loads of indigenous sugar carried at owners’ risk.

Mr. Ghosh rightly says that by charging lower rates on imported sugar, railways not merely reduced their own earnings but also added to the profits of the foreign manufacturers.

Similarly, for Delhi, lower rates were quoted on imported matches from Bombay and higher rates from Ahmedabad even though Ahmedabad is about 300 miles nearer. In the case of leather, “the grant of port rates nearly 50% less than the internal rates —discouraged Indian Tanning industry.”

Despite the recommendation of the Industrial Commission that “internal traffic should be rated as nearly as possible on an equality with traffic of the same class and over similar distances to and from ports,” the railways continued to persist with their policy of discriminatory rates.

A consequence of these preferential rates was to encourage the establishment of industries in the port towns of Calcutta, Bombay, and Madras. This led to the present day con­gestion and over-crowding in these cities and their problems of housing, labour, and sanitation.

Yet another objectionable feature of the rates policy was the use of the ‘Block- rates’. The object of Block rates was to retain traffic on the line on which it originated and block it from passing, after a short lead, on to a rival route.

For this purpose, higher mileage charges for short lengths were imposed on traffic moving from the one railway system to another. In some case, this method was ruthlessly used in killing competition of other means of communications, e.g.. the B.B.C.I. used these rates to kill the shipping industry at Broach.

Even when using ‘Scale’ or ‘Tapering Rates’ which involved a progressive reduction of fares with the length of the distance travelled, each railway company treated the length on its own system as the sole basis for its charges, irrespective of the total distance which the consignment covered.

The result was that a con­signment, which divided a journey of 300 miles between three railways, only obtains the milage rate applicable to a journey of 100 miles. Terminal charges were also sometimes used to extract as much as possible from the traffic which, it was feared, might travel a greater distance over a rival line.

In addition, there were the transshipment and Ghat charges, adjusted class rates, short distance charges which every railway company levied. The multiplicity of these charges and variations in their rates on different systems made the railway rate structure so very com­plicated that even experienced members of the railway staff found it difficult to calculate them.

Whatever their justification, these rates often affected traffic undesirably, increased inequalities and, on the whole, tended to operate to the disadvantage of internal traffic and Indian industries.

As T.R. Sharma explains, these rates meant discrimination even between different regions of the interior and led to concentration of industries in a comparatively small number of towns and cities, e.g. Kanpur and Nagpur, which happened to be important inland transport centres.

Unfortunately, there was no active and alert authority to regulate and control the rates policy in the public interest. The Railway Board was reluctant to modify the rate structure built upon the basis of separate organisations.

Notwithstanding the public demand and the recommendation of the Acworth Committee for the appointment of a Railway Rates Tribunal, the government only set up the Railway Rates Advisory Committee in April 1926.

The Committee did some useful work but failed to go far enough. It was, what Mr. R.D. Tiwari likes to call, a compromise, halfway measure and, as such, its powers and functions were seriously limited. The members lacked judicial powers while the fear that the government might not accept their recommendations failed to create confidence in commercial circles.

Some of these defects in the railway rates structure were removed when a new system of telescopic class rates on a continuous mileage basis was introduced in 1948. Further changes were introduced in 1952 when the practice of charging rates on the basis of inflated mileage was given up; the concessional rates on the transport of sugar to the South and special rates for Iron and Steel were withdrawn.

The telescopic class rates were further modified in 1955 when class rates for the first 300 miles were increased; for 301-600 miles were left undisturbed, while those beyond 600 miles were reduced. The Railway Freight Structure Enquiry Committee of 1957, which investigated the question again, found that the 1948 rating scheme was no more useful.

With a view to enabling the railways to maintain their financial stability and also carry the additional traffic generated during the Second Plan, the committee recommended a regular and progressive increase in rates.

In the committee’s opinion, the most satisfactory method of achieving this increase was to have a standard rate called class 100 rate, and to express all other rates as a percentage of this rate so as to form an integrated scale covering the rates both by class of goods and by wagon loads.

In addition, the committee recommended the abolition of the terminal charges, the transshipment and Ghat charges, and of additional short-distance charge.

The proposed structure had one main defect in that it favoured long distance goods traffic while penalizing the short distance one. Therefore, while introducing a new freight structure towards the end of 1958, government modified the recom­mendations of the committee and introduced two norms, instead of one recom­mended by the Freight Committee, for the percentage system of increase.

Passenger fares were also changed and revised. In 1948, passenger fares were standardised on a uniform mileage basis. After seven years, the authorities, however, realised that the changes adversely affected long distance passengers. Consequently, passenger fares were also fixed on the basis of telescopic fare structure.

With this, many of the anomalies, which characterised the rate structure before Independence, were removed. Export and import traffic was treated at par with internal traffic; classification of goods and freight rates was simplified; coordination between the railway and roads was secured; and con­centration of industries near the sources of raw materials was prevented.

The greatest achievement, however, was that the railway rates were now so designed as to help in the industrialisation of the country and serve the overall needs of the economy.

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Essay # 5. Railway Finances in India:

Before April 1925, railway finances were a part of the general finances of the government. Any surplus earned by the railways was transferred to the govern­ment, and deficit, if any, was met out of the government’s general revenues. This mixing of the finances made the railways entirely dependent on the government for all their financial requirements.

Availability of funds depended upon the ex­igencies of the time. Schemes of urgent repairs and improvements and even ‘works in the process of execution’ had to wait because the government, having more pressing things on hand, could not spare the necessary funds. Even otherwise, the financial methods of the government were not suited to the requirements of a commercial undertaking like the railways.

The control of the Finance Member, who is always constrained to economise, could not make for any bold policy. The system of ‘allotments’ which could be suddenly increased or suspended, together with the system of ‘lapse’ at the end of the financial year, often led to extravagance, and never secured steady and economical working.

The way in which each railway administration submitted its ‘programme’ of both capital and special revenue expenditure, the various stages through which the estimates had to pass, and the manner in which the final grant was received, not only sapped all initiative to careful estimate in the construction of projects, but also caused a great deal of delay.

No provision existed for depreciation or a replacement reserve. The result was a terrible underfeeding of the railways. There were numerous complaints of drawbacks and lack of capacity the inevitable result of a ‘paralyzing’ system which was not adapted and developed to meet the requirements of commercial service.

The AcWorth Committee found that the government could neither attain the standard of expenditure of Rs. 18.75 crores recommended by the Mackay Com­mittee nor could adhere, over a period of time, to any uniform rate. Between 1908-1909 to 1919-1920, a maximum of Rs. 18 crores was reached only once against the annual average of Rs. 11.2 crores.

The climax was reached during the First World War when all expenditure, including that for maintenance and repairs, was deliberately kept down. But, instead of carrying the money so underspent to a reserve for future renewals, it was treated as part of the increased revenues to the government.

Thus, while the net profits to the State from railways increased from 4.5% in 1914 to a little over 7% in 1918-19, the maintenance of railway property was sadly neglected. “The financial system which produced such results stood self condemned.”

A point worthy of note is that this arrangement conferred no benefit on the government either. She could not be sure about railway profitability or loss in a particular year and, even in years of profits, she could never correctly anticipate the surplus with any measure of confidence. This imparted uncertainty to govern­ment finances which made proper budgeting difficult.

This problem of railway finance had been noticed at a fairly early stage. Major Conway-Gordon had proposed, as a remedy, the separation of the railway finances from the general revenues of the country to the Parliamentary Select Committee of 1884. In 1900, Lord Curzon wrote a Minute on this question generally favouring the separation.

In 1906, the commerce member of the Viceroy’s Council raised the question again but the Mackay Committee gave their opinion against it.

It was the AcWorth Committee which examined this question in detail and having been impressed by the ‘remarkable results’ of the separation in such countries as France, Italy, Belgium, and Japan, firmly and finally concluded that Indian railways could not be “modernized, improved and enlarged so as to give India the service of which it was in crying need at that time nor could the railways yield to the Indian Public the financial return which they were entitled to — until the whole financial methods were radically reformed.”

The Committee, therefore, recommended two major reforms:

(a) “The complete separation of the railway budget from the general budget of the country” and

(b) “The eman­cipation of the railway management for the control of the Finance Department.”

The terms on which railway budget was separated from the general budget rested upon a convention agreed to by the Central Assembly in September, 1924.

The provisions of the Railway Finance Separation Convention were:

1. That railway finances would be separated from the general finances;

2. In addition to the interest on the capital-at-charge, the railways would contribute one per cent on the capital on commercial lines (excluding capital contributed by companies and Indian States) at the end of the financial year plus 1/5 of surplus profits.

3. That the interest on capital-at-charge of strategic lines and loss in their working would be borne by the Government;

4. That, if after payment of this contribution, the amount available for transfer to Railway Reserve Fund exceeded Rs. 3 crores, 1/3 of the excess over Rs. 3 crores would be paid to the government revenues;

5. That this Reserve Fund would be used to secure the payment of the annual contribution, to provide for areas of depreciation and generally to strengthen the financial position of the railway;

6. That, a standing Finance Committee consisting of members of the Assembly, would be constituted to consider the estimates of railway expenditure;

7. That the Railway Budget would be presented to the Assembly in advance of the General Budget, and that the Member-in-charge of railways and not finance, would present the same.

The convention also provided for the setting up of a Depreciation Fund based on the cost and estimated life of the assets. This Fund was to finance the replacement of worn-out rolling stock and lines.

The separation of the Railway Budget was “the most important reform in­troduced during the present century in connection with the administration of Indian Railways.” It made railways independent of the vagaries of the annual general budget. It now became possible for the railways to build adequate reserves for the further and also plan and undertake schemes of development without any let or hindrance.

However, as Tiwari explains, the value of this salutory change was impaired by the rigid provision for contribution of 1% to the general finance even for years when railways experienced loss. It prevented the railways from giving any relief to the public by way of lower rates and fares or better facilities.

The six years following the adoption of the convention in 1924, were very satisfactory from the point of view of railway finances. They accumulated Rs. 41.5 crores in their Depreciation fund and also contributed Rs. 42 crores to the general revenues. The picture, however, changed with the onset of the depression and the decline in trade, both internal and external.

The situation was further aggravated by disturbed political conditions, increasing competition from road and river transport and falling wheat exports. As a consequence, surpluses turned into deficits and railways not only did not make any contribution to general revenues, but, apart from withdrawing Rs. 31.34 crores from the depreciation fund, practically finished their Reserve Fund also.

Conditions started improving after 1936-37 though real prosperity came only during the Second world war. The unprecedented increase in traffic, goods as well as passenger, led to an enormous rise in railway earnings so that the railway were able to replenish their Reserve Fund and also repay all arrears of contributions to the general revenues.

The war also imposed a heavy strain on the government’s finances which, apart from being stretched to the maximum, were too meagre to meet the demand made upon them. It was accordingly decided to revise the 1924 convention. By a resolution passed by the Central Assembly in March 1943, the convention of 1924 became inoperative from 1 April, 1943.

The most important provisions of the new convention were:

(a) That, after repaying any outstanding loan from the Depreciation Fund, any surplus on commercial lines was to be shared with the government in the ratio of three to one, i.e., 75% to the government and 25% to the railways;

(b) That further surplus on commercial lines were to be shared between the railways and the general revenues according to the needs of each. Following the adoption of this convention, railway earnings were shared according to adhoc agreements reached between the government and the railways.

The attainment of independence changed the entire picture and priorities in the country.

Accordingly, the Railway convention was revised in December, 1949, by a Resolution of the Constituent Assembly which provided:

1. That general and railway finances would continue to be separated;

2. That, from 1950-51, general revenues would receive, for five years, a fixed 4% on the capital invested in railways provided that no dividend was payable on the capital invested out of general revenues in unremunerative strategic lines;

3. That this arrangement would be reviewed, at the expiry of 5 years, by a committee of Parliament which would also suggest any adjustment in the rate of dividend;

4. That a Railway Development Fund would be constituted for financing expenditure on employees’ welfare, necessary but non- paying projects, and provisions of amenities to passengers ;

5. That, for the next five years, a fixed sum of Rs. 15 crores a years would be transferred to the Depreciation Fund;

6. That a standing Finance Committee and a Central Advisory Council for railways would be constituted so as to associate the public with railway administration.

With the adoption of the new formula, the old complicated arrangement was discarded. Rules for allocation of funds to the capital and revenue account were simplified, thereby raising the standards of efficiency and amenities. Likewise, allocation to the Depreciation Fund enabled the railways to quickly replace worn- out equipment. The exemption of payment of dividend on strategic lines was another welcome relief to the railways.

The quantum of contribution by railways to the general revenues was again reviewed by Parliamentary convention committees in 1954, 1960 and 1965 when the rate of dividend payable was suitable revised.

According to the recommen­dations of the Railway Convention Committee, 1965 and approved by the Parlia­ment, the rate of dividend on capital invested up to 31 March, 1964 was increased to 5.5% and on capital invested after that date to 6%. The new rates came into force from April, 1966.

It may, however, he noted that the separation of railway finance from general finance is a hangover from Pre-Independence days when the motives of the separa­tion were not strictly economic but political. It had no relevance in the Post-Independence period when the railways, though still worked as a commercial enterprise, were, in-fact, run as a government department.

The railways themselves did not generate sufficient savings to meet what the Planning Commission called “the minimum obligation of the railways as a public utility concern.” Rather, the bulk of the expenditure was met from out of the general revenues.

This may be seen from the fact that the railways provided, from their own resources, only Rs. 1286 crores —a bare 40.7% out of the total outlay of Rs. 3153 crores incurred on the railways during the first three plans.

While railways thus became de­pendent, their revenue and expenditure were often adjusted to meet the needs of the government. It happened, for example, in 1951 when railway fares were increased to provide ‘assistance’ to the general budget.

This made a farce of the so-called Railway convention. A separate budget for railways, therefore, was no more justified than for the river-valley projects or the public sector steel undertakings.

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