History Optional Paper-2 Solution – 2010: Q.1 (b)

History Optional Paper-2 Solution – 2010: Q.1 (b)

Q.1 (b) “Railway development in India provides an interesting instance of private enterprise at public risk”. Critically evaluate.

The construction of Railways in India by British colonists was entirely for the purpose of furthering the British interest. Lord Dalhousie took great interest in railway projects for military and economic reasons. He thought that railway would icrease striking power of the British forces, bring British capital and enterprise into India and provide access of ports to the interior part of the country which would provide British with the better access to raw materials for British manufacturing and new Indian market for British good.

Dalhousie gave the overall development plan of the railway in his Railway Minute of 1853. Under Dalhousie’s plan, railway construction was undertaken by British private enterprise under the supervision and the control of the Government.

The railway projects provides an instance of private enterprise at public risk due to the following reasons:

(1) The Government of India provided the private enterprise with free grants of land and guaranteed interest at rate of about 5% on the capital outlay, if necessary from Indian revenues. The return guaranteed was much above the contemporary rate of returns in Europe.
(2) Free land were given to the private companies withh 99 years lease, after the expiry of which the railway line would become the governmemt property. But any time before that, even a few months before the expiry of the lease, the company could return the lines to the government and claim full compensation for all capital expended, i.e. they could enjoy 5% guaranteed profit for 99 years and then get back all their capital.
(3) The multiplier effect of the railway construction boom benefited private enterprises in Britain, as machinery, coal, railway lines etc, were imported from Britain. The transfer of technology remained confined to the low technology area.

The constant drainage of Indian wealth through guarantee system led to much reckless expenditure on the part of the Companies and imposed an enormous financial burden on the government.

However, two changes were made gradually to stop wastage:

(1) The construction of some railways was undertaken directly by the Government.
(2) A new guarantee system was introduced; the railway was declared to be the property of the State and the rate of interest on the capital invested by the Companies was reduced to about 3.5%.


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