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The Governor-General himself reported, that the plains of Hindustan offered remarkable facilities for building railways which would be a immense value to the commerce, government, and military control of the country.The proposal for the construction of railways was finally accepted in 1845.The typical attitude was: “I care nothing about what is done with money so long as that is spent to secure 5% to the shareholders.” A fact worthy of note in this connection is that among the prospective investors, many were friends and relations of the directors of the East India Company.
Although the government held that “a guaranteed interest on the requisite capital was indispensable to induce the public to invest their money……….
“, critics found the system both unnecessary and wasteful.
With the growth of political power and expansion of territories, the British administrators in India realised the need for improved means of transport.
They, therefore, pushed railway development with vigour, giving it priority over everything else in the country.
It was unnecessary in the sense that even unguaranteed capital would have flown into India.
As Macpherson has pointed out, after the heyday of the Industrial Revolution, safe and profitable outlets for investment in England had greatly narrowed down.
The system was wasteful because interest on capital invested being guaranteed, there was neither a fear of loss not an incentive for economy. “The standard of construction was far higher than required for the conditions of the country or for the actual work which the railways were designed to perform.
Conveniences were provided which were unnecessary for the safe and efficient operation of railways.” Even experimental lines had double-tracks.
The construction and operation of railways in India was to be carried on by private companies. The government was to provide land free of cost, for the construction of railway stations, staff quarters and railway lines. The government guaranteed interest at rates varying between 4½ to 5% on the capital raised by the companies and this interest was payable from the date the capital was subscribed. Surplus profits, above the guaranteed minimum, were to be equally shared by the companies and the government till the past advances by way of guarantee was repaid in full.
Thereafter, all profits were to go to the railways companies. All transactions were to be calculated at the rate of the rupee. The route, gauge, construction, gradient etc., were all to be sanctioned by government which also had the right to order alterations. The government reserved to itself the power of supervision and control on the working of the railways, including rates and fares. The contracts were for 99 years at the expiry of which the land and works were to become the property of the government which had to pay only for the plant, machinery and rolling stock. The government had also the right to purchase the lines after 25-50 years at the average market value of the shares in London. A company could, however, hand over its management to the government any time and get the capital invested by it. A government director with the power of the vote on all proceedings was to sit on all Railway Boards. The Government bound itself to promote all necessary legislation.