Indian Railways Rates And Regulation

TEXT FLY WITHIN
THE BOOK ONLY

u< OU_1 60497 >[g

GUP 390 29-4-72 10,000

OSMANIA UNIVERSITY LIBRARY

Call No 3$ f ' 9< ? ty Accession No.^ 1 '

Author
Title
This book should be returned on or before the date last marked bdow.

I j ~" j

STUDIES IN ECONOMIC AND POLITICAL SCIENCE

No. 90 in the series of Monographs by writers connected with the London
School of Economics and Political Science.

INDIAN RAILWAYS:
RATES AND REGULATIONS

INDIAN RAILWAYS:

RATES AND
REGULATIONS

By

N. B. MEHTA, Ph.D.

With an Introduction by

W. TETLEY STEPHENSON, M.A.

LONDON
P. S. KING & SON, LTD.

ORCHARD HOUSE 14 GREAT SMITH STREET

WESTMINSTER
1927

Printed and Made in Great Britain by
Thomas De La Rut & Co., L.d,, London

CONTENTS

CHAP. PAGE.

PREFACE ........ v

INTRODUCTION BY W. TETLEY STEPHENSON, M.A. ix

I. A SKETCH OF THE RAILWAY POLICY OF THE

GOVERNMENT OF INDIA . . . . n

II. PROBLEMS OF ORGANIZATION AND FINANCE . . 47

III. THE THEORY OF RAILWAY RATES ... 58

IV. THE DEVELOPMENT OF RATES AND REGULATION . 80
V. COMPETITION AND RATES DISCRIMINATION . . 127

VI. CONCLUSION : THE URGENCY OF A RATES ADVISORY

COMMISSION ...... 164

APPENDIX 175

BIBLIOGRAPHY 181

PREFACE

PORTENTS are not lacking that the awakening demos in
Indians getting tremendously interested, inter alia, in rail-
way matters. Resolutions and questions innumerable in
the Imperial Legislature bear sufficient testimony to it. A
rapid change is also overcoming the railway management.
Following upon the Report of the Acworth Committee, the
Railway Board has been overhauled and re-organized ; a
Central Advisory Council and Local Advisory Committees
have been established ; and the railway budget has been
separated from the insalutary influence of the general
budget, and for the examination of it a standing Finance
Committee has been constituted. The decision of the
representatives of the people that the State should take over
the management of the E.I. and the G.I. P. Railways, and
its acceptance by the Government, has created a landmark
in the annals of Indian railways, reversing as it does, the
policy initiated by Lord Hartington and Sir Evelyn Baring
in 1882. These are but indications of the important hold
which railways are getting on the public mind. And this
is as it should be, for hitherto the lot of the railways was
frankly incommensurate with their financial, economic and
social importance.

Literature on the subject is, however, scanty. This
constitutes the raison d'etre and justification for the present
work.

The purpose of the following dissertation is to examine
the rates policy pursued by the railways in India, and the
power of the Government to control it. It is attempted to
show that this power over the railway companies is in the
first place inadequate, and that some of it is inconvenient
of enforcement or is not actually exercised. Three facts
are emphasized : the preponderant financial stake of the
State in the railways, the obsolescence of the theory of the

vi PREFACE

automatic regulation of railway rates by competition or by
the law of supply and demand, and the need, therefore,
of a more rigorous yet enlightened policy of State control.

Complaints of unduly discriminatory rates imposed by
the railways have been numerous and of long standing.
While the law formally prohibits undue preference, its
sanction is neutralized by the non-existence for practical
purposes of a body to entertain complaints of such a
nature, examine into them and decide upon them or advise
the Government to do so. The absence of such a body has
been grievously felt by the public, and the criticism of the
continued tolerance of such a state of affairs is one which
Government cannot very well face. On the other hand,
the unsympathetic and short-sighted policy of the railways
has turned the hands of the public against them, and State
management has been the resounding cry. Yet it needs no
stretch of the imagination to perceive that the stress which
the public is laying upon State management is accidental.
To the public the one obvious fact is the failure of railways to
further the needs and aims of the country. What it essen-
tially desires is an efficient and economical service ministering
to its legitimate aspirations. Clearly, therefore, there can
be no justification if the State managed railways adopt a
policy detrimental to social interests. The situation in
regard to the Company-managed railways is, however, on a
different plane. The power of the State over them is
limited by the contracts. So long, therefore, as the con-
tracts are current what is desirable to improve the present
situation is that the State should exercise an enlightened
yet a more effective control over them a control so imposed
that this national property may achieve the maximum of
utility for the community coupled with a reasonable remun-
eration to the concessionaires. It may also be possible
thereby, to bring the public and the railways into more
harmonious relations, and dispel mutual apprehensions.
An important part of a railway's work is the cultivation of
public confidence by publishing its achievements and
promise of improvements in service for the future. This
aspect the Indian railways have neglected. It is suggested

PREFACE vii

that to accomplish this purpose a standing Railway Com-
mission of the advisory type, inexpensive and expeditious
in operation, should be appointed.

The writer wishes to express his profound sense of obliga-
tion to Mr, W. Tetley Stephenson, Head of the Department
of Transport at the London School of Economics and
Political Science, for his general supervision of the work
and Lis sympathy, stimulus and critical guidance. The
work bears the imprint of his valuable suggestions founded
not less upon practical experience than upon theoretical
learning.
SCHOOL OF ECONOMICS AND POLITICAL SCIENCE, LONDON.

March, 1925.

N. B. M.

INTRODUCTION

THE railway literature of the world steadily grows, but at
a very varying rate in different countries. Each country
though, presents its own special problems, and so for each
country a special literature is desirable. The present
volume is the second book which has been produced with
special reference to the railways of India, by a student
preparing a Thesis for a higher degree in the University
of London.

The first was The Role of the State in the Provision of
Railways, by tL M. Jagtiani, in which the part that the State
should play in railway development was admirably discussed
in the light of the experience of England, Prussia and
India. Mr. Mehta now follows with a study of railway
rates and fares, in which he examines first the principles
which underlie rates and fares ; then the application of
those principles in practice ; and finally the need for, and
nature of, the control which the State should exercise to
ensure the principles being applied reasonably and without
undue discrimination. Throughout, India is the country
preeminently in the mind of the Author.

Throughout the research which preceded the writing
of the book, I was in constant touch with Mr. Mehta, and
know how hard he strove to adopt an unbiased attitude,
and to keep in check national feelings which might have
prejudiced his judgment. The best testimony to his
success in this endeavour was given by a distinguished
official of one of the great Indian railways, who, having
read the book in manuscript, expressed the opinion that it
was the fairest, best balanced book he had ever read by
an Indian.

It is worthy of note that about the time Mr. Mehta
presented his thesis for the Ph.D. degree (which was sub-
sequently awarded him) the Government of India took
steps to investigate several of the problems therein dealt

x INTRODUCTION

with. Though their conclusions did not result in practical
remedies identical with those advocated in the book, they
differed in such ways that it is evident that expediency
rather than principle had dictated the course that action
had finally taken.

Mr. Mehta's book will be useful to students of railways
generally. I would, however, commend it not merely
to students of railway transport, but as whole-heartedly
to all concerned in railway transport in India, whether as
Government officials exercising control, or railway officials,
or large customers of the railways. The last will under-
stand the railway problem better, whilst the former will
get a not unkind description of the way in which their
actions in the past have been viewed by the traders. The
result should be a better understanding.

W. TETLEY STEPHENSON.
LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE.

CHAPTER I

A SKETCH OF THE RAILWAY POLICY OF THE
GOVERNMENT OF INDIA

" IT cannot be necessary for me to insist/' wrote Lord
Dalhousie in his memorable minute 1 to the Court of Directors
of the East India Company, " upon the importance of a
speedy and wide introduction of railway communication
throughout the length and breadth of India. A single
glance cast upon the map recalling to mind the vast extent
of the Empire we hold ; the various classes and interests it
includes ; the wide distances which separate the several
points at which hostile attack may at any time be expected ;
the perpetual risk of such hostility appearing in quarters
where it is least expected ; the expenditure of time, of
money and of life, that are involved in even the ordinary
routine of military movements, would convince of the
urgency of speedy communication." He continued, " And
if the political interests of the State would be promoted by
the power which enlarged means of conveyance would confer
upon it of increasing its military strength, even while it
diminished the numbers and the cost of the army, the
commercial and social advantages which India would derive
from their establishment are, I truly believe, beyond all
present calculation. Great tracts are teeming with produce
they cannot dispose of. Others are scantily bearing what
they would carry in abundance if only it could be conveyed
whither it is needed. Every increase of facilities for trade
has been attended, as we have seen, with an increased
demand for articles of European produce in the most
distant markets of India. . . . Ships from every part of the
world, crowd our ports in search of produce which we have,
1 Dated 20 April, 1853.
II

12 . INDIAN RAILWAYS

or could produce in the interior, but which at present we
cannot profitably fetch to them. ..."

These lines in the able, lucid and comprehensive minute
constitute the raison d'etre of the Indian railway policy.
Lord Dalhousie was pre-eminently swayed by two motives :
political and commercial. When he arrived in India the
map of British territories was indistinct and disconnected.
His forward policy of conquest and annexation brought
about an extensive territorial homogeneity the preservation
of which was the motive underlying his policy of communi-
cations. As President of the Board of Trade he had had
invaluable railway experience, and he was convinced of the
importance of railway communication for a country.
Though Solferino and Magenta were yet to be, he had
visualized the strategic superiority which a railway could
impart to a country of such long distances as India. The
strength of an army, said Napoleon, lies in its legs. Swift
despatch of troops by railway would permit of a curtailment
of military strength, and it was calculated that in that way
there would be a saving of 50,000 a year. There was
another advantage. From Calcutta to Delhi the dak
runners carried the mails in eighty days : the railway could
carry them in sixty hours.

Nor did commercial advantages which would follow upon
the construction of a railway escape his attention. Cotton
was largely in demand in England, and it could be supplied
from the rich cotton districts of India provided it was carried
cheaply and safely to the ports. He saw what a vast market
for British manufactures could be created " in the most
distant markets of India" and " beyond our present frontier."
He perceived the manifold economic and social advantages
which both countries would derive by bringing to bear
British capital and enterprises upon the hitherto unexploited
resources of the country. He desired India to reap the
similar benefits which the introduction of the railway had
conferred upon Europe. The success of the experimental
lines in India was one more factor which augmented his
optimism. He perceived that if lines were judiciously
selected, well and economically constructed, the chances

SKETCH OF THE RAILWAY POLICY 13

were that Government would have to bear no burden of
interest. He decided that the experimental lines must be
quickly followed up by a systematic extension.

His zeal for the introduction of British enterprise into
India swayed him into pronouncing in favour of joint-stock
companies as instruments for the construction and manage-
ment of railways. He thought imperially. He lived
in a milieu, it must be remembered, when economic individ-
ualism was at the zenith of its vogue, and joint-stock
enterprise in its full vigour. " I hold " ran his minute,
" that the creation of great public works, which although
they serve important purposes of state, are mainly intended
to be used in those multifarious operations which the enter-
prise, the trade, and the interests of the community, for
ever keep in motion, is no part of the proper business of a
Government."

In the pre-railway regime facilities for carriage by land
were fairly good, although neither sufficient to move the
large quantity of traffic existing nor cheap enough to extend
or cultivate the field of commerce. Travellers rode on
horses or in palanquins, or in the unpretentious tonga or
ekka. Goods were conveyed in bullock carts or on the backs
of bullocks, buffaloes, donkeys and camels. The internal
trade of India was large and in varied products but the
indigenous modes of transport were inadequate to carry it
in all directions. The troublous period that preceded the
advent of the " iron-horse " had disorganized the means of
communication in the land. The old system, again, had
manifest disadvantages as compared to the mechanical
carriage by railway. It was slow and costly, irregular and
risky, and the distance commodities were carried and their
tonnage were comparatively very small. By its very
character its sphere of service was circumscribed, and it
must have restricted a proper distribution of the trade of
the country. Investigations in Bombay in 1846 showed for
instance, that the marked decline in the cotton trade then
was attributable to the heavy cost of cotton owing to the
high cost of carriage. The means of transport was not
adequate and during the tedious land transit there was

14 INDIAN RAILWAYS

an appreciable loss in quantity coupled with a deterioration
of quality. If the monsoon was successful the flooding of
rivers made the journey difficult for bullocks ; while if it
failed the bullocks were deprived of fodder and water.
These defects were accentuated and brought into relief
during a famine, when prices fluctuated furiously and there
was the strange spectacle of a bumper crop in one part of
the land with grains selling cheaply or lying unused in stores,
with a dearth in another and abnormal prices and a starving
population. During one such famine it is recorded that
while coarse grain was selling at Agra at five and six seers l
the rupee, at Goondwara it was at forty seers. At Agra
there were sixty thousand paupers besides thirty-seven
thousand in the Division dependent upon State relief. 2 In
1877, when the price of wh'eat at Bilaspur was is. 4d. per cwt.
in the Bundelkhand District, six hundred miles away, it
was 6s. 8d. The railway cannot eliminate the famine which
is a resultant of complex factors, nor restore the depleted
purchasing power of the people. It can however alleviate
the sufferings of starvation by carrying food-stuffs cheaply
and expeditiously to the necessitous area, and thus restrict
mortality. A cart with its weakened bullocks of a famine
year, over roads that are cracked and rutty cannot carry
more than one third of a ton of grains, nor for more than
thirteen miles continuously. The railway can do the work
of six hundred carts and run four hundred miles a day and
with proportionately a smaller number of men in attend-
ance. 3 It was observed in 1880 that transport by cart was
five times the cost of that by rail, and ten times the cost in
times of famine. 4

The early efforts to construct railways in India may be
traced to 1832 when a railway was contemplated between
Madras and Bangalore ; and in 1836 a line in this direction

1 Railways for Bombay, 1849.

A seer in British India equals a kilogramme or 2-2 Ib. avoirdupois.
A railway maund is 82*29 Ibs.

a Ibid.

9 Evidence of Sir W. W. Hunter before the Select Committee on East
Indian Railways, 1884. para. 7, 142.

4 Evidence of Sir James Caird before the Famine Commission, 1880,
para. 377.

bKETCH OF THE RAILWAY POLICY 15

was surveyed by a Government engineer. 1 In 1842,
Mr. C. B. Vignoles sujmitted a report to the East India
Company on the possibility of constructing railways in
India. In 1843, Mr. G. T. Clarke was invited to visit Bombay
and his views on the subject were identical with those of
Mr. Chapman who at a later period commenced the G.I. P.
Railway. 2 Nothing definite however, seems to have been
decided at this time. A little later Mr. Chapman, Mr. Mac-
donald Stephenson, and Mr. Mackay came out to India to
investigate on behalf of the cotton merchants of Manchester
the feasibility of constructing railways from the interior to
the coast with a view to conveying cotton more cheaply/
After satisfying themselves that the terrain lent itsell
eminently for the purpose, the two former applied in 1844
for the permission and support of the East India Company to
construct lines in Bengal and Bombay respectively. With
the prevalence of the railway mania in England and the
disturbed conditions in India, the occasion did not seem
auspicious. The Court of Directors of the East India
Company were, however, favourable to the request, and
suggested in their despatch to the Government of India, the
need for railway construction and the advisability therefore
of employing British capital. Insistence was placed upon
the right of the Government to purchase the trunk lines.
Adverting to the prospective traffic they thought that while
in England the largest returns were procured from pas-
sengers, in India the main source of earnings would be the
goods. They were in favour of construction on a moderate
scale, but concluded that more light on the subject was
necessary and to that end suggested the appointment of a
commission. 4

The Commission was thereupon appointed. In their
investigation they found that the terrain was full of extended
plains without serious undulations, the value of land was

1 Sir W. P. Andrew, Indian Railways, p. xvi. For early history see
also G. W. McGeorge, Ways and Works in India, 1894, Chap. VI.

a Note by Capt. E. C. S. Williams, R. E., 16 July, 1867.

8 Evidence of William Sowerby before the Select Committee on East
India (Public Works,) 1879.

4 Despatch of the Court of Directors to the Government of India, 7 May
(No. ii) 1845.

16 INDIAN RAILWAYS

low, labour and materials were cheap, and general facilities
for procuring building materials ektensive. Favourably
impressed with these circumstances they reported that in
India " railways were not only a great desideratum, but with
proper attention, could be constructed and maintained as
cheaply as in any part of Europe." l

The extent of State help to be afforded to the private
companies was a subject that did not lend itself to an easy
solution. Varicfus and divergent views were held upon it,
and it was not until long years of controversial correspond-
ence had passed between the Government of India, the
authorities in England, and the promoters of the enterprise,
that a decision was reached. The Government of India in
general viewed a free grant of land as a sufficient inducement
to attract British capital and enterprise to embark on the
undertaking. They did not consider it expedient or politic
to guarantee a dividend either during construction or after
completion of the works ; and insisted upon reserving to
themselves the power of regulating the profits of the railway
companies. 2

Investors, however, thought otherwise ; and it was
realized that if railways were to be constructed by private
agency a guarantee was necessary. Lord Hardinge, the
Governor-General, seems to have thought as much, for in
his minute he suggested that the contribution was a sine
qua non and that it should be given commensurately with
the political, military and commercial advantages which the
country would derive from a railway ; that mere grant of
land was not sufficient, and " on military considerations
alone, the grant of one million sterling, and an annual con-
tribution of five lacs of rupees " should be offered to the line
from Calcutta to Delhi. 3

The Board of Control was averse to the grant of a
guarantee. More correspondence ensued, and what with the
medley of conflicting views that prevailed the prospect of

ji Report of the Engineer Officers. 13 March, 1846.

2 Letter dated 9 May, 1846.

3 Minute by Lord Hardinge, the Governor-General of India, dated
28 July, 1846. A lac is the equivalent of a hundred thousand and a
crore of ten million.

SKETCH OF THE RAILWAY POLICY 17

railways for India seemed none too bright. In the mean-
time it was suggested by the Government of India as a
solution that they might be allowed to construct the lines
themselves. But the suggestion was peremptorily rejected,
conflicting as it was with the great desideratum of intro-
ducing British enterprise into India. 1 To get out of this
imbroglio, the Court of Directors in November, 1846, penned
their decisive note to the Government of India. They held
that a guarantee was indispensable and suggested its limit
to four per cent on the condition that the railway company
deposited a sum of one million sterling in the State treasury,
agreed to an equal division of profits with the State and to a
power of supervision and control over its affairs to be
vested in the East India Company. The Board of Control,
to whom these proposals were submitted, again took a strong
exception to the guarantee. They would not have it unless
it was indispensable, and then to be limited at all events to
a period of fifteen years. When the modified terms were
offered to the railway company, it found the limitation of
the period of guarantee a handicap to raising capital. To
the request of the Court that the previous unmodified terms
be offered, the Board declined. After three months the
Court made another effort to enthuse the promoters, but
without avail. Meanwhile, the state of the money market
had necessitated a guarantee of five per cent. In their
exasperation the Court wrote a pressing despatch to the
Board dwelling on the urgency of early construction of
experimental lines and the expediency of offering " effectual
assistance to any association of individuals who may be
prepared to embark in the undertaking/' 2 The Board
yielded ; and an agreement was made with the Company.

But the birth-pangs of railways in India were yet to be
protracted. There was a monetary crisis in England and
consequently the company failed to deposit in the treasury
of the East India Company the sum of 100,000 stipulated
in the contract. The whole affair thus fell through. The
matter was revived in 1848 when the idea of an experimental

1 Evidence of Juland Danvers before the Select Committee on East
India (Railways) 1858.
a Ibid.

i8 INDIAN RAILWAYS

line matured by the railway company was endorsed by the
Court on condition that a sum of 60,000 was deposited with
the East India Company and a proof offered within four
months of the ability of the private company to construct
the works. The company failed once more ; and again was
it proposed by the Court to permit the Government of India
to construct the railways themselves. The Board of Control
dissented. It is strange that the Board should have vetoed
a proposal which seemed to put an end to the long-drawn
difficulty and insisted on a system from which all element
of real enterprise had vanished. The Government felt
confident that they could raise the necessary money and
construct the preliminary lines themselves. There is no
denying that capital in India was lacking and that foreign
capital was needed -for the development of the country.
Railways were, however, not the only sphere. There were
collieries and other mines, jute and cotton mills, and a
number of other industrial undertakings wherein government
agency was not required and private entrepreneurs would
have reaped ample rewards, besides furthering the material
welfare of the country. It may be that the Board were
severely obsessed with the idea of introducing private enter-
prise in India ; or perchance they harboured misgivings
about the commercial ability of the East India Company
whose exploits as traders were not such as to inspire confi-
dence. Subsequently, more modified terms were propounded
and accepted ; and in August, 1849, contracts with the E.I.
and the G.I.P. Railway Companies were formally executed.
This period coincides with the important landmarks in the
history of European and American railways. The crisis of
1847 in England terminated the infancy period of its rail-
ways ; on the Continent of Europe the revolution 1848-1851,
had substantial influence on railway policy ; while in
America with 1850 date the land grants and the beginning
of the trans-continental lines.

The East Indian and the Great Indian Peninsula Railway
Companies formed in 1845, after prolonged negotiations and
interruptions caused by the difficulty of agreement as to
terms and the condition of the English money market, were

SKETCH OF THE RAILWAY POLICY 19

thus able to conclude their final contracts with the Secretary
of State for India. Inese two and subsequently five other
railways, namely, the Madras, the Scinde, the Bombay and
Baroda, the Eastern Bengal and the Great Southern of
India, were constructed under terms known as the guarantee,
by which they received from the State for a period of ninety-
nine years a guarantee of five per cent per annum upon
capital expended by them upon their undertakings and
sanctioned by the Government. A fixed rate of 22d. to the
rupee as exchange for the remittance of interest charges
was agreed upon. This system of co-partnership resulted
in the Government contracting to exercise stringent super-
vision and control over the affairs of the companies from the
very construction to the actual operation of railways. The
Government defined the route to be followed by every line,
the number, speed and times of running of trains ; they
approved the rates and fares chargeable, and required a
reduction of these when the profits exceeded ten per cent.
Mails and postal servants were to be carried free of charge
and troops and military stores at reduced rates. At the end
of ninety-nine years the land and the works were to become
the property of the State, the rolling stock and other
movable property to be paid for at a fair value. The
Government had the option of purchasing the line within
six months after the first twenty-five or fifty years : the
sum to be paid being the full amount of the value of all
shares and capital stock, calculated on the mean market
value in London during the preceding three years. The
Company on its side might surrender the line after completion
upon giving six months' notice, when the Government would
have to refund the sanctioned capital outlay. In case of
default by the Company in finding capital, or in any other
way, the Government had the power to take over the line
on payment within six months of the capital outlay. Any
surplus over five per cent was to be divided, so that one-half
was to be paid to the Company and the other half to be
applied in the first place towards the payment of interest on
debt, and then towards the extinction of the debt itself.
Thereafter, it was to be applied to pay an additional dividend

20 INDIAN RAILWAYS

over the guarantee as " inducement for an active, energetic
and economical management " of the Company's affairs. 1
If the net receipts amounted to less than five per cent the
sum was to be made up from the revenues of the Government
of India. Finally, in case the receipts were not equal to the
amount paid for working and maintaining the railway, the
deficiency was chargeable against the guaranteed interest,
and the dividend payable to the shareholders was propor-
tionately reduced.

These favourable terms offered to the Companies resulted
in a ready subscription of capital, and at the same time made
it necessary for the Government to keep a watchful eye and
exercise a salutary check over the management of the
Companies. The machinery for this purpose existed both
in England and in India. There was an Official Director
who was an ex-officio member of all the Boards of the railway
companies in London, and he possessed a power of veto on
all the proceedings of the Directors. Questions involving
expenditure, not considered by the local Governments in
India, and all matters of importance, were referred to the
Secretary of State. In India, there were special officers
appointed for the task of supervision later styled Con-
sulting Engineers whose powers and duties were defined by
certain rules. 2 They were to co-operate with the officers of
the railway companies, to supervise the expenditure, and to
submit such cogent matters as they may think necessary for
the sanction of the Government. All plans and surveys
were to be submitted to these officers in the first instance.
Further, they had the power of controlling all matters
involving expenditure, and the extension of works over
the line. 8

The first trunk lines were laid out on the plan formulated
by Lord Dalhousie. The G.I. P. first commenced working
in 1853, with a line from Bombay to Thana, a distance of
22 miles ; while in the following year the E.L ran its first
train from Calcutta to Raneegunje, a distance of 37 miles.

1 Financial Letter to India, No. 27 ; dated 14 November, 1849.

2 Imperial Gazetteer, Vol. Ill, Chap. VII.

3 Evidence of Juland Danvers before the Select Committee on East
tndia (Railways) 1858.

SKETCH OF THE RAILWAY POLICY 21

In 1855, I2oj miles were opened in Bengal, and 5oJ in
Bombay. Madras poosessed a railway mileage of 65 in 1856.
Altogether seven companies were laying out lines in the
different parts of India. In the furtherance of the policy of
construction there seemed, however, to be much delay. It
was suspected that this was the result of friction between
the supervising officers of the Government and the officers
of the railway companies. 1 It is probable that the Con-
sulting Engineers, recruited as they were from the ranks of
military officers, were not fitted by their experience to be
proper critics of the schemes of construction propounded by
the Companies' officers. Nor did they exercise sufficient
discretion and tact in their dealings with the latter. The
result was friction and complaints from both the sides. The
Committee while pointing out the existence of the vexations
and annoying control exercised by the Government over the
railway companies, stated that it was a minor factor and
that " no very material delay . . . appears to have resulted
therefrom." The main causes were : (i) these extensive
and complicated public works were carried on under
peculiarly difficult conditions in a distant land ; (2) political
disturbances like the Sonthal Rebellion and the Mutiny
which destroyed much railway property and materially
slackened railway progress ; and (3) the natural difficulties
which the face of the country presented.

In the meanwhile the superiority of the railway over the
older modes of transport was being conclusively witnessed.
The people and the goods responded remarkably to the
stimulus which the railway gave, and the fears of those who
had discounted the love of the people to travel were dispelled.
The Indian proved to be an inveterate traveller, and when
duty, social or religious, called him, he would undertake
journeys from which many Europeans would shrink. There 2
was also an abundant material of wealth which remained
partially unexchanged since the mode of transport was
infacile and inadequate. With the progress of railways a

1 Report from the Select Committee on East India (Railways) 1858.

2 Despatch from Major T. T. Pears, C. B., Engineers, to Sir H. C.
Montgomery, Bart., Chief Secretary to Government, Fort_St. George,
dated 5 March, 1851.

22 INDIAN RAILWAYS

transformation was observed in both these directions.
Between 1853-54 when the total mileage was 35, and 1858-9
when it had increased to 467, the total number of passengers
carried by rail increased from 535,195 to 2,722,382 ; and the
tonnage of goods from 23 to 195,431. Of the total number
of passengers in the latter year 2,516,583 travelled third
class, which makes a proportion of i6J to I to the first and
second classes put together. The impetus which the cotton
trade received was also notable. In the old regime cotton
of Nagpur and Amraoti was brought a distance of 500 miles
to Mirzapur by Banjaras upon their oxen, each of which
carried 160 Ibs. and travelled about seven miles a day. The
cost of conveyance was Rs.2-8 per bullock per 100 miles.
If the rains fell, cotton became wet and heavy and this
difficulty was enhanced by the unmetalled tracks being
transformed into muddy ruts. Cotton was a valuable
commodity and was largely in demand in England, and it
will be recalled that the first lines were constructed by men
interested in that trade. The railway eliminated the old
obstacles, so that while in 1849 the United Kingdom
imported 67 million pounds from India out of a total of
751 million pounds, in 1858 it imported 197 million pounds
out of a total of 1,098 million pounds. 1 When transport was
costly and risky there was little inducement to increase the
growth of cotton, and acres of land well suited for it remained
uncultivated. Indian cotton again only found a market in
England when the American supply was deficient ; thus
proving the need for cheap transport. With the advent of
the railway Berar, Khandesh, Gujarat and Sind became
more productive and India entered the markets of Europe
as a rival of America for the supply of cotton.

A surging national trade followed in the wake of this
improved mode of conveyance. In the inevitable period of
retrospection that followed it was found, however, that the
railway was proving a financial burden to the country, being
worke'd at a loss, and the system upon which it was estab-
lished came in for its share of criticism. As previously

1 Report to the Secretary of State for India in Council on Railways in
India for the year 1859. By Juland Danvers.

SKETCH OF THE RAILWAY POLICY 23

mentioned, the Court of Directors were in favour of a
guarantee ; while the Board of Control dissented from this
view. Lord Dalhousie had looked at the subject in the same
light as the Court and had recommended liberal terms to the
companies both as regards time and money. Capital was
not forthcoming in India, and the English investor, it was
held, would not embark his capital on a scheme in a distant
and little known country without the assurance of a definite
return upon his outlay. It is possible that the State could
have constructed the necessary railways and that it could
have raised the money more cheaply than private companies, 1
but the policy enunciated for it was one of laissez faire.
While private companies were invited and a guarantee
given them, Lord Dalhousie was, however, cautious to
impress that the amounts of money to be guaranteed should
be based on sufficient data, that the cost of the works
must be reasonable, and that the lines must be completed
within a specific period. Moreover, he had the officers of
the East India Company enjoined " to exact the utmost
economy consistent with perfect security and efficiency "
in construction. 2 Clearly, the possibility of carelessness
and extravagance by the private agency was not ignored
by the authorities when the system of guarantee was decided
upon. Commenting upon the terms of the contract between
the East India Company and the first two railway companies
for the construction of two experimental lines in Bengal
and Bombay, the Government of India wrote, " It was then
urged upon us, that we should extend our guarantee so
as to secure a dividend of five per cent, to the shareholders.
To this proposal we could not assent, and chiefly on the
ground, that had we done so, it would, so far as the amount
of dividend was concerned, have removed all risk whatever
from the shareholders, and, of course, destroyed to a great

1 Juland Danvers in his testimony before the Select Committee on East
India (Public Works) 1879, stated that the State could have raised the
money more cheaply, para. 4,100. Sir Richard Strachey in reply to a
question put to him by the Select Committee, 1884, gave as his opinion
that the idea that the Government could not borrow the money was a
' delusion " " the probability is, in fact it is almost a certainty, that they
could have borrowed the money on better terms than the Company."

3 Minute, dated 20 April, 1853.

24 INDIAN RAILWAYS

extent, the motives for that strict economy and energetic
conduct of the affairs of the railway which would alone
secure its success." 1

With all this sense of circumspection in regard to the
contracts with the railway companies, they were so defec-
tively worded and drawn out that they militated against
careful and efficient construction and management. 2 The
guaranteed interest was payable, not upon expenditure
incurred, but upon all the capital called up, so that the
companies were relieved of all responsibility for the cost
of construction, and any incentive to economy, save that
supplied by the remote prospect of an eventual share of
surplus profits in excess of the guaranteed interest. The
greater the expenditure, the greater the capital called up ;
and this produced a rate of interest as high as five per cent.
Government control proved ineffective what with the
inexperience of the Consulting Engineers and the imperfect
system of audit. The Government Director in England,
who was armed with a veto, did not exercise his power
either because it was not detailed enough or because he
was afraid of friction with the Directors of the Companies.
The shareholders of the Companies were too far removed
from the scene of action to care to know anything about
the details of construction or maintenance or operating
expenses so long as they received their guaranteed dividend.
The obvious consequence was that the first cost of construc-
tion exceeded the original estimates by a large margin,

1 Financial Letter to India, No. 27, dated 14 November, 1849.

2 William Thornton in his evidence before the Parliamentary Committee,
1872, gave expression to similar views on the subject of the contracts.
" They contradict themselves/' he said, " two or three times in the course
of their several clauses, and they are seldom appealed to for the protection
of Government interests without turning out to be practically worthless
for the purpose .... This is the necessary result of the way in which they
are drawn up that, a railway having been commenced on the understanding
that a certain guarantee would be given by the Government whatever the
railway might cost, the Government is practically bound to continue the
guarantee of interest upon the expenditure. Therefore, of course, the
undertakers of the railway, the Company, are deprived of one of the great
inducements to economy ; they know that whatever blunders they make,
those blunders will not prevent their getting full current interest on their
expenditure."

Paras. 1,856 and 1,857.
Infra. Chaps. IV and VI.

SKETCH OF THE RAILWAY POLICY 25

the companies failed to earn the guaranteed interest from
their property, and 'he burden upon the State increased
with every mile of railway.

Had the guarantee been earned, the system would have
proved favourable and would have remained unimpeached.
The system is not inherently unjustifiable, and it has been
tried not without success elsewhere. Provision of a detailed
right of supervision and the establishment of a suitable
machinery for that purpose are, however, necessary for its
success. The defect of the Indian guarantee was the absence
of a limit to the sum that might be invested in the railways ;
so that construction of heavy lines was undertaken. The
lines opened before 1870 built on the five feet six inch gauge
cost between 17,000 and 30,000 a mile. 1 Interest on
capital, and the cost of land and supervision coupled with
the loss by exchange on capital transactions, began to
accumulate fast. Lines which were commenced in 1848-9,
did not begin to work until 1853-4, when their net receipts
aggregated to Rs.77,695, while the Government paid
Rs.8,69,858 as interest on capital, etc., to them, and incurred
a further loss of Rs.3,78,785 by exchange. In 1860-1, the
State had to pay to the companies a sum of a crore of
rupees. 2

The financial defects of the guarantee soon began to
attract the attention of the Government. In 1858, Lord

1 Imperial Gazetteer, Vol. III. p. 369.

Sir Arthur Cotton in a Paper read before the East India Association,
14 December, 1869, said " The highest cost of any line is 27 J millions for
1,280 miles, or adding 20 per cent for simple interest and land, 33 millions,
which is 25,000 a mile." The Rt. Hon. William N. Massey told the
Parliamentary Committee 1872, that the East Indian Railway had cost
the exorbitant sum of 30,000 a mile.

2 Infra, foot-note p. 28.

W. J. Thornton who was connected with the Indian Public Works
Department, has a trenchant critique of the guarantee system. " The
guarantee/' he writes, " they finally resolved upon was practically
unlimited. Under the contracts entered into by the companies which
they called into existence, if the first estimate of a railway should
subsequently prove insufficient, it might be doubled or trebled, little
choice being reserved to Government but that of guaranteeing whatever
amounts might successively be demanded for the completion of the under-
taking, for any period, however protracted ... If it had been desired to
make the Railway Board extravagant, what more certain mode could have
been adopted than that of securing to them the full current rate of interest
on whatever they might expend ? " Indian Public Works, 1875, p. 32.

26 INDIAN RAILWAYS

Canning suggested that in future contracts, a thorough and
critical estimate should be made of the whole line and the
guarantee be paid on a defined gross sum and no more. 1
Sir J. P. Grant attacked the guarantee as " artificial and
complicated," and wondered how it could have been adopted
at all ; for " objectionable as the working of the guarantee
system may be in the eyes of many, that is nothing as com-
pared to the financial objections, which nobody can dispute.
The system, is, as I have said, raising money by a special
public loan ; but under conditions the most disadvantageous
possible for the people who must be taxed for the payment/' 2
In 1861, Mr. S. Laing, the Finance Member, roundly con-
demned it on the score that the management was non-
resident and that the data as to first cost and probable
traffic being uncertain, the companies looked almost ex-
clusively to the guarantee ; thus neutralizing all the advan-
tages of private enterprise. 3

Pronouncements such as these by persons in authority,
did not fail to have an effect ; and in 1860- 1 the Secretary
of State decided not to guarantee any new railway under-
taking. The Oude Railway Company, which had already
executed surveys with the approval of the Government,
was ordered to postpone its works, and the amount expended
thereupon was returned to it with interest. It must be
understood that there was nothing to prevent the existing
undertakings from constructing more lines with the assist-
ance of the Government.

Two unguaranteed railway companies were then estab-
lished ; namely, the Indian Branch Railway Company, and
the East Indian Tramway Company. These Companies
undertook to construct certain branch lines off the East
Indian and the Madras Railways respectively, without a
guarantee, but a subsidy instead, the payment of which was
contingent on the actual completion and maintenance of the
line. Such kind of assistance was the beginning of a system
which the Government intended to substitute for the much-

1 Vide Note by Capt. E. C. S. Williams, R. E., on Extension of Railways
in India, 16 July, 1867.

2 Ibid.

8 Minute, dated i April, 1861.

SKETCH OF THE RAILWAY POLICY

27

criticised guarantee. In both the cases Government
provided nearly all the necessary land free of expense, and
granted, among other concessions, 100 a mile per annum
for twenty years. 1

The Indian Branch Railway Company opened its first
line for traffic on 21 December, 1863, from Nulhatee station
to Azimgunje, a distance of twenty-seven miles ; and the
East Indian Tramway Company constructed a line from
Arkonam to Conjeveram, a distance of i8f miles in 1864-6.
These terms were not found attractive and they were con-
sequently withdrawn. Nor did the two companies stand
long on their legs ; they had to be guaranteed ; the first
subsequently merging into the Oudh and Rohilkhand Rail-
way Company, and the second into the Carnatic Railway
Company.

The failure of unguaranteed railways, the increasing
financial burden of the guarantee, 2 and yet the urgency of
railway extension in the interests of the country, led to
much heart-searching in the Government quarters for a
solution out of the impasse. To add to the difficult financial
condition of the country, there was at this period a general
rise in prices and wages ; while money was badly needed for
improvements in every department of the administration.
Matters took a still more unfavourable turn rendering the

1 Report on Railways in India for the year 1863-4. By Juland Danvers

2 The following figures show how the companies fell short of earning
their guaranteed dividends, which had, therefore, to be made up by the
State. Appendix No. 3. East India Railway Committee, 1920-1.
(Cd.i5i2).

Year Amount paid as Amount recovered Loss to the State

guaranteed interest from net receipts

1858-59
1859-60
i 860-6 i
1861-62
1862-63
1863-64
1864-65
1865-66
1866-67
1867-68
1868-69
1869-70

838,411

1,199,929
1,485,745
1,788,153
2,166,755
2,456,182
2,683,787
2,889,241
3,031,087
3,480,677
3,881,013
4,126,025

232,365

403,057

389,413

391,162

625,015

821,548

1,129,851

2,865,574

2,347,085

1,989,112

2,229,509

2,627,941

606,046

796,872

1,096,332

1,396,991
1,541,140

1,634,634

23,667
684,002
1,491,565
1,651,504
1,498,084

28 INDIAN RAILWAYS

position of the Government still more embarrassing, when
the land was visited by the severe Orlssa famine of 1865-7,
followed in rapid succession by the prolonged drought in the
United Provinces and Rajputana in 1868-70. In this
predicament it is not to be wondered that private enterprise
and the guarantee system, which seemed to have been
indissolubly connected, came in for their share of criticism.
Private enterprise had hesitated to construct lines which
were necessary for the development of the country without
the inducement of a guarantee. The railways were again
worked at a loss. This was telling seriously on the national
exchequer, and no more lines were thus taken in hand. The
endeavour to get companies interested in constructing rail-
ways on the terms of a free grant of land and a subsidy per
mile had proved unfruitful. Nor, on the other hand, were
the guaranteed companies willing to make alterations in
their contracts necessary in the opinion of the Government
to insure proper economy and control over their under-
takings. The result was that in the previous decade the
construction of lines averaged only 350 miles a year. 1 Many
more were necessary to meet the growing needs of the people,
and thus the direct agency of the State for their provision
was contemplated.

The role of the State as an entrepreneur may either be to
develop the country in view of the absence, apathy, or mis-
management of private enterprise, or it may be for political
or military reasons. In the case of India all the factors must
have weighed conjointly with the authorities. The para-
mount consideration was, however, the absence of economy
of private enterprise at a time when the national finances
were at a low ebb. The State, it was contended, could
borrow money more cheaply, and construct and operate the
lines as economically and efficiently as private joint-stock
corporations. This subject was broached by Lord Lawrence
(then Sir John Lawrence) in a proposal he made to the
Secretary of State, Lord Northcote, in 1867. The latter,
however, held other views on the matter. He conceded the

1 Thornton writes that it took the guaranteed companies 20 years to
make 5,300 miles of railway, an average of 265 miles annually. Indian
Public Works, p. 33.

SKETCH OF THE RAILWAY POLICY 29

advantages of the State constructing political lines ; but
for commercial lines, he viewed that private enterprise on
the guarantee terms was preferable. Again, in 1868, he
expressed his opinion that " Railways are not likely to be
made in India without the aid of a guarantee. The capital
which has hitherto been invested has almost entirely come
from England. It has gone to make probably the most
profitable lines ; and if even for these it could not be
obtained without guarantee, it is unreasonable to suppose
that it would be forthcoming for similar support for the less
profitable." l This divergence of opinion prevented the
steady pursuance of a definite policy, and the much-needed
railway extension suffered a set-back.

In 1869, the Duke of Argyll was appointed Her Majesty's
Secretary of State for India, while Lord Mayo succeeded
Lord Lawrence as the Governor-General of India. Prior
to his departure, Lord Lawrence, who was fortified in his
conviction of the necessity of State agency for railways,
had penned his famous minute. 2 He declared therein that
he would not blindly embark upon an indefinite scheme of
railway extension without bearing in mind the condition
of national finance. Examining the guarantee system he
pointed out that it admitted no set-off of profit against
loss in the Government share of these transactions. " The
whole profit goes to the companies, and the whole loss to
the Government/' To the plea that Government should
not interfere with the investment of capital by private
enterprise in large public works, he replied : " It is an abuse
of language to describe, as an interference with private
enterprise, what is only a refusal to support private specu-
lators and to guarantee them from all possible loss by the
credit of the State, or to allege that the investment of
capital by private persons is hindered by the Government
executing works, when private persons refuse to do so at
their own risk." The history of guaranteed companies
had shown, he added, " bad and extravagant " management.
Cassandra-like, he condemned the policy of handing over

1 Despatch No. 3 of 16 January, 1868.

2 Dated 9 January, 1869.

30 INDIAN RAILWAYS

commercial lines to private investors, keeping for the
Government political lines. An important advantage
claimed for the Companies was, that they could raise the
money with greater facility than the State and could be
relied upon to carry on the works vigorously without being
swayed by the financial condition of the country. Lord
Lawrence controverted this view. " After the last monetary
crisis in England, the Government was obliged to lend
money to several of the companies to admit of the necessary
capital being provided ; and the superior credit of the
Government, and its powers of meeting difficulties of this
description, were most strikingly exhibited." He considered
all presumed financial advantages in the arrangement with
the companies illusive. l Dwelling upon the enormous growth
of the guaranteed capital, without any commensurate
extension of the mileage of railways, and with a tendency
to stationary traffic returns^ he concluded that the moral
to be derived therefrom was the same as " has been taught
on a gigantic scale in England, namely, the urgent necessity
for resisting the tendency to incur additional capital outlay,
without creating clear additional paying power in return."
This was followed by a despatch to the Secretary of State
from Lord Mayo's Government, based on that by Lord
Lawrence and with an identical conclusion. They also
insisted on the necessity of economy in construction and
management of railways in a country so indigent as India. 2
In the first place they demanded " a far more rigid scrutiny "
over the constant additions the companies had been making
to the guaranteed capital ; and argued that Government
could undertake to construct railways themselves, and that
a narrow gauge might prove more suitable to the needs of

1 It is noteworthy that five of the members of the Indian Railway
Committee, 1920-1, including the Chairman, arrive at a similar conclusion
and particularly stress the fact that the Indian railway companies have
peculiar characteristics of their own. They explain " Our conclusion is,
in a word, that the guaranteed companies do not possess the essential
attributes which belong to ordinary companies. To claim that, because
ordinary companies possess the advantages of energy, enterprise, and so
forth, therefore companies of the nature which we have described may be
expected to possess these advantages, is to be misled by a mere name."
Report of the Indian Railway Committee, 1920-1 (Cd. 1512). 216.

a No. 28. Dated 22 March, 1869.

SKETCH OF THE RAILWAY POLICY 31

the country. The guaranteed railways which had occupied
the most profitable roates and had cost over 17,000 a mile,
were earning on the average a bare three per cent. The
progress of lines was again slow. The State, they com-
puted, could build at the rate of 300 miles a year for 12,000
a mile. A cheap railway might mean provision of a greater
mileage ; while " an extravagantly constructed railway
is a permanent financial failure," and hindered the provision
of more lines. What the country wanted then was an
extensive scheme of light lines with low speed and moderate
charges.

The Secretary of State in reply agreed that conditions
had so far altered as to entitle the Government " to secure
the full benefit of the credit which it lends, and of the
cheaper agencies which ought to be at its command." 1
The alteration in the views of the authorities in England
in the direction of agreement with those of the Government
of India was further observable in the Duke's financial
statement. " Let the Government undertake the con-
struction of lines," he said, " and you will have single
authority and single management ; and it will be contrary
to the nature of things if you do not have a considerable
reduction in the cost of Indian railways." 2

Despite the drawbacks of the guaranteed companies, no
appraisement of their work could be complete without at
the same time considering the peculiar conditions under
which they commenced working, and the value of their
achievement. Theirs was the task of pioneers during a
period of stress and strife, and they braved all the risks
inherent in a new enterprise in an unknown land. Much
of the material for construction had to be transported
from England under difficult conditions the Suez Canal
was not yet constructed first to a port in India and thence
to the scene of operations. The Government did not have
at its disposal an adequate engineering staff to undertake
such huge public works. It is problematical if Government,
in periods of financial stringency, would not have diverted

1 Despatch dated 15 July, 1869.

2 Railways (India) Financial Statement, 27 July, 1869

32 INDIAN RAILWAYS

funds to more urgent needs, had the capital been raised as a
Government loan. It is arguable whether a vacillating
financial policy would have permitted the unobstructed con-
struction by Government of a railway system of (5,ooo miles
during those sixteen seismic years. Their cost of construction
was certainly enormous and part of it cannot bear close
scrutiny ; and yet there were extenuating circumstances.
The originators in their enthusiasm may have reckoned the
costs too low, and in their optimism under-rated the physical
difficulties which the terrain presented. The Sonthal
Rebellion and the Mutiny destroyed much railway property,
and were responsible for wasting millions of money and
augmenting the original cost. Again, Lord Dalhousie's
desideratum of bringing private British enterprise into
India was fulfilled ; and it may be that the British share-
holders began to evince a more intimate interest in the
welfare of India. Good proceedeth out of evil ; the Indian
Government reaped valuable experience through their
supervision and control over the companies ; a spirit of
criticism and emulation was stimulated and a feeling of
self-reliance aroused, making state construction possible.
Institutions are evolved to serve temporary needs of the
society ; with the inevitable modification in the Zeitgeist,
the institutions must also undergo a modification to minister
to the newer needs of the society. But it is by the stepping
stones of past experience, by the method of trial and elimina-
tion of error, that man improves his environment and
institutions. In this light may we view the absolute guaran-
tee system ; it made state construction possible.

A new epoch dawned in the history of Indian railways
when the State took upon itself responsibility for future
construction and for raising the necessary money for that
purpose. A tolerably complete net-work of main lines,
traversing all parts of the country, and which would ulti-
mately prove profitable was the goal laid before it. It was
calculated that a further mileage of 10,000, over the existing
5,000 would provide the necessary link between the various
parts of the land ; and that 300 miles at a cost roughly of
12,000 each, could be opened every year ; so that in thirty

SKETCH OF THE RAILWAY POLICY 33

years, it was computed, the requirements of the country
would be met without any perceptible strain on the national
exchequer. The new lines proposed to be constructed were
about twelve in number and were well-distributed.

In the meantime a step with far-reaching consequences
had been taken by the Secretary of State in England.
According to the contracts with the guaranteed railways
Government had the power of purchasing their property
after the first twenty-five years, and it was contemplated
by the Government of India, that the G.I. P. would accord-
ingly be taken over by them in 1874. In 1869, however,
the Secretary of State entered into agreements with these
companies by which in return for an equal division of the
profits over the interest for the remainder of the lease, the
State relinquished its right of purchasing them at the end
of the first twenty-five years, and cancelled the arrears due
to it by the companies for guaranteed interest. The
Government of India, who were in daily touch with railway
administrations, felt that they should have been informed
even had they not been consulted, and possessing different
views on this scheme, they despatched a note strongly
protesting at a step which implied sacrifice of a great source
of income, cancellation of an economical financial arrange-
ment, and prolongation for an indefinite period of a heavy
burden upon the tax-payer of India. 1 They wondered why
such a concession should have been made to the companies
at a time when the credit of the Government was good ; the
undertakings of the companies were approaching completion:
their demand on the money market had almost ceased, and
their stocks quoted at a considerable premium. They
expressed their regret that their views concerning such a
momentous subject should not have been invited.

The E.I. Railway Company declined the offer, but the
G.I. P. and subsequently the B.B. and C.I. and the Madras
Railway Companies accepted it, and thus the important
right which was vested in the State to purchase these lines
was waived for a further period of twenty-five years. " In
thus losing the opportunity," wrote General Chesney, " of
1 Note No. 80. Railways, 12 August, 1870. c

34 INDIAN RAILWAYS

reducing the high and now unnecessary rate of guaranteed
interest of five per cent ; an opportunity which will not
recur until 1899 and 1907 respectively, a fault of omission
was committed which it is difficult to extenuate/' 1

The Secretary of State in reply was inclined to be very
sanguine about the future of the railways. " There would
be nothing extraordinary " he wrote " in a country like
India, with a traffic capable of indefinite expansion and where
railway management is susceptible of such great improve-
ment if the average of railway earnings should, seventy or
eighty years hence, have advanced to the required per-
centage." While thus defending his action, he realized the
awkwardness of his procedure and assured the Government
of India that in future no such step shall be taken without a
previous communication with them. 2 It may be stated,
en passant, that in the predicament Government then were,
saddled with the unprofitable railways, it might have given
them financial relief had they had the profitable and unprofit-
able lines together, so that the profitable might not only
have covered up the loss on the unprofitable ones, but might
have bred more railways. 3

The key-note to the history of railways in India is the
instability of the country's finances, and this has made it
incumbent upon the Government to pursue a policy of
construction conformable to them. The Government have
been charged with having no clear railway policy and thus
of being responsible for the erratic and slow progress of the
lines. The charge cannot very well be refuted so far as
this century is concerned. For the second half of the last
century, however, an appreciation of the financial condition
of the country would go some way in mitigating it. While
it is true that there was no settled policy in regard to the
agency or construction or gauge of the railways, especially

1 Indian Polity, p. 308.

a Note No. 82. Railways, dated 3 December, 1870.

8 Apropos Sir George Chesney states " The heaviest charge on the
account, however, arises from the high rate of interest still paid to the
G.I.P., the B.B., and the Madras Railways " ; and " the rupee being now
worth only one half its value at the time when the capital raised was sent
to India to make the railways, a return of nearly 10 per cent is now required
to cover the guaranteed gold interest of 5 per cent." Indian Polity,
p. 312-13.

SKETCH OF THE RAILWAY POLICY 35

after, 1881, it may be pleaded in defence, that until 1900,
the railways were unprofitable and that consequently the
railway policy was dependent upon extraneous considera-
tions and vacillated with them.

Underlying the attitude of the Government which brought
in the second era in railway history, there was the cogent
consideration of economy. The guaranteed lines had
involved heavy work and high expenditure, henceforth it
was decided to extend the lines on " a narrow gauge track,
laid on a substantial road and subway, with rails propor-
tioned to the limited wheel loads of the improved engines
now obtainable, and to the moderate speed required by the
circumstances of the country/' Again, the Government
were convinced that they could raise loans more cheaply
than private companies. After much deliberation the metre
gauge was adopted for the State railways. The sum which
the Government could appropriate annually was fixed at
2,000,000. Extraordinary works were to be constructed
from borrowed money or from surplus balances. In 1874,
Lord Salisbury laid down three rules for guidance. No
works were to be constructed with loans, except those likely
to prove remunerative by yielding in the shape of an annual
income a sum equal to the interest on the money expended
in their construction, including interest during construction ;
famine preventive works might be made out of the revenue
of the year, but if that proved insufficient recourse might be
had to borrowing ; and all loans for public works should be
raised in India, it being inexpedient to increase the home
charges in England.

The limit of 2,000,000 fixed to annual expenditure,
was found inconvenient, and in 1875 the sum was increased
to 4,000,000. Extension of lines did not proceed quite
satisfactorily, owing among other things, to considerable
sums having been expended on the conversion, for strategic
reasons, of the Indus Valley and Punjab Northern State
Railways from the metre to the broad gauge. Reviewing
the situation in 1879, the Select Committee on East India
(Public Works) reported that " the expenditures upon
railways and irrigation . . . though not remunerative in

36 INDIAN RAILWAYS

the aggregate, have, upon the whole, been beneficial to
India, and although considerable sums have been wasted
and certain profitless schemes undertaken the policy of
continuing to borrow for productive public works, may
within limits and restrictions hereinafter laid down, be
continued."

The policy of State construction and management which
was so enthusiastically initiated by the Government was
energetically pushed on for a period of ten years. Private
enterprise did not receive encouragement in any direction
during this era. The greater part of the new extensions
were made on the metre gauge, being mainly feeders or
subsidiary lines. Broad or the standard gauge was, how-
ever, acknowledged as the best adapted for main traffic
.xmtes. The total mileage which was 4,771 in 1870, increased
to 8,996 in 1880 ; while the capital outlay on open lines
increased from 88,064,000 to 129,098,964. l Yet there
were rifts in the lute. Between 1874 and 1879, the
land was visited by that scourge of immemorial antiquity,
famine, and it left in its destructive wake desolate
homes, deserted fields and a general paralysis of
the economic life of the country. A commission of
investigation was appointed, who recommended that
to safeguard the country from this oft-recurrent fury,
5,000 miles of railway was the least that should be
constructed. Schemes for the extension of famine-
protecting lines were then prepared, and would have been
systematically accomplished had not another catastrophe
befallen the country, necessitating the diversion of the
State's resources and energy in a different channel. The
Afghan War dealt the coup-de-grace to the policy of pure
State construction and management. Government finance
was disorganized, and it was held that if the progress in
railway extension was to continue, private enterprise and
capital must be invited again, for reliance could no more
be placed upon the Government to achieve that purpose.

In England a feeling of hostility towards State enterprise
in India was again surging up. It is possible that there

1 Reports on Railways in India. By Juland Danvers.

SKETCH OF THE RAILWAY POLICY 37

was a misreading of Indian conditions, which stood in sheer
antithesis to those in England. It must not be ignored that
in India, as to some extent in France, Germany and other
European .countries, the State has always worn a paternal
garb, initiating important public works, engaging in trade
and commerce, and generally taking a lead in industrial
matters and encouraging private enterprise by help and
advice. The old shibboleths of encouragement to private
enterprise and the non-interference of the State in the
construction and management of large public works were
conjured up. It was contended that the Government had
failed to carry out the programme of railway extension in
India. The subject assumed a more practical aspect in
1877, when the question of the future arrangement with
the East India Railway Company, whose lease was expiring
in 1880, came up for consideration. The Government of
India and Lord Salisbury, the Secretary of State, came to
the decision that while on the one hand their right of
purchase must not be allowed to lapse, the existing direction
must, on the other, be allowed to continue. 1 It was decided
thus to purchase the main and the branch lines and to retain
the East India Railway Company as the managing authority
of the property. 2

This was the prelude to the reversal of the policy advocated
by Lord Lawrence and initiated by Lord Mayo. In reply
to a despatch from Lord Lytton's Government in June,
1880, the Secretary of State, Lord Hartington, struck the
keynote to the impending policy. " In the case of railways,"
he wrote, " I do not doubt that Your Excellency will bear
constantly in mind the importance, whenever possible, of
ensuring their construction by private capital, either local
or European/' 3 That heretofore a guarantee was a sine
qua non of private enterprise should not stifle attempts to
encourage the raising of private capital through private
agency, on the exclusive security of the success of the

1 For these negotiations see G. Huddleston, History of the East Indian
Railway, Chap. IX.

2 Report from the\ Select Committee on the East India Railway Bill,
1879.

8 Rai Saheb C. P. Tiwari, Indian Railway s, p. 251.

38 INDIAN RAILWAYS

undertaking. If it became apparent that this policy was
not practicable, he suggested the adoption of a modified
system of guarantee, so as to create among the subscribers
a real interest in the efficient and economical administration
of the venture. He also enunciated the line of policy to
be followed with regard to expenditure upon productive
public works. The sum to be borrowed yearly was limited
to 2\ millions ; the question of constructing new railways
was to be considered on commercial principles ; and, unless
a line was likely to pay four per cent upon its outlay, within
five years, it was not to be undertaken ; needless to say, a
stipulation unwarranted by previous experience.

In the Financial Statement for the year 1881-2, we have
the genesis of the new policy. Referring therein to the
limit of 2,500,000 for yearly capital expenditure, Lord
Cromer (then Sir Evelyn Baring) contended that it was
transparently inadequate. 1 He did not, however, abandon
hope of constructing railways with the rapidity which the
needs of the country demanded. There were some lines
which private capitalists might be induced to construct
without aid from the Government, or with a minimum
amount of help. He agreed that a railway was practically
a monopoly, but on that score he would justify State super-
vision rather than State management. In favouring com-
pany management he was impelled by the same desire which
had actuated Lord Dalhousie, of inculcating among the
people a spirit of self-help and self-reliance. " I am not
without hope," he declared, " that if an impulse can be
given to railway construction by British enterprise, native
capitalists will enter the field, either alone or in conjunction
with Englishmen." 2

Financial stress underlay the new policy which once more
heralded the re-introduction of private enterprise for the
extension of railways side by side with the State. The
Afghan War had proved a great strain on the Indian finance,
while the burden of the railways was yet substantial. In

1 Reproduced in "Indian Railways." An Argument for a Government
Monopoly in Preference to Private Enterprise" Calcutta, 1884.
3 Ibid.

SKETCH OF THE RAILWAY POLICY 39

1878-9, which was an exceptional year, railways were respon-
sible for a burden of Rs.2,36,oo,ooo upon the State, but it
fell to Rs.2O,5o,ooo in 1881-2. This did not permit of
satisfactory progress in railway extension, and the delay
was re-acting upon the trade of the country, both internal
and external. British merchants were increasingly be-
coming interested in the country's supply of raw produce
and its demand for British manufactures. While in the
" forties they had urged a rapid construction of railways in
India for developing cotton cultivation and trade, they now
pressed for a greater mileage in the interests of the wheat
trade, for which they saw prosperous potentialities. Wheat
was working under the same handicap as cotton was thirty
years before, namely, a slow, risky and costly method of
conveyance, which laid a fairly heavy toll upon its prime
cost, materially affecting its exchangeability and restricting
the area under its cultivation. American competition at
the time was powerful in that commodity and if the Indian
product was to find a satisfactory market closer commercial
relations between India and England were necessary.
More wheat from India would enable England to be less
dependent on America and at the same time would better
the lot of the Indian rayat. A greater exchange of Indian
cotton with English iron and cotton goods would also prove
beneficial to both countries. " If English iron masters,
instead of anxiously watching the probable requirements of
America in excess of the ability of local iron-works to supply,
were to turn their attention to the requirements of India,
they would find there a field for the consumption of iron
for railway purposes beyond their utmost sanguine expec-
tation." 1

The problem of the ways and means for railway extension
was exercising the attention of the Government of India all
this time. On the morrow of the series of famines, which
revealed the urgency of a rapid net-work of lines in the
country, a portion of the Famine Insurance Grant, which
was created about this time, was made available under
certain conditions for the construction of railways of a

1 Indian Wheat versus American Protection, 1883.

40 INDIAN RAILWAYS

productive or protective nature. In 1883, the financial
situation was clearer, and it was ^bought advisable to
appoint a Parliamentary Committee to investigate the whole
railway problem and see if railway progress could not be
accelerated. The Committee, after a diligent inquiry lasting
for about five months, presented their report. 1 They recom-
mended a rapid extension of railways in the interest of
areas liable to famine as well as the trade and industries of
the country. The greater the railway mileage the stronger
the stimulus to the expansion and diversification of the
economic activities of the people. Its indirect benefits they
claimed, were experienced in an increase in the land revenue
and the general amelioration of the economic condition of
the masses.

The employment of the agency of private companies side
by side with the State was urged. On the one hand, money
could be raised more cheaply by the State, the construction
and operation by the companies, on the other, did not
involve any increase in the staff of the Public Works Depart-
ment, and relieved the Government of a somewhat onerous
charge ; besides which, the emulation between private
enterprise and the Government working tended to promote
economy and efficiency.

The capital required, they suggested, might be raised in
India, if possible, if otherwise, it might be raised in England.
They however emphasized that extension of railways must
not involve additional taxation upon the country.

These recommendations accorded with the policy enun-
ciated by Lord Cromer and thus a great fillip was given to
the construction of railways both by the State and private
agency. As a matter of fact even before the appointment
of the Committee, on the recommendations of the Famine
Commission of 1880, a definite departure from the previous
system had already been made. For instance, according to
the arrangement made with the Southern Mahratta Railway
Company, the property was owned by the Government, the
Company having raised and deposited the capital with the

1 Report of the Select Committee (Parliamentary) on East Indian
Railways, 1884.

SKETCH OF THE RAILWAY POLICY 41

Government and receiving in its turn a guarantee of four
per cent for the first ~even years and three-and-a-half per
cent thereafter. For working the line the Company was
paid one-fourth of the net earning of the property. 1 The
drawbacks of the arrangement were that the Government
could not clear their interest until the Company had earned
at least four per cent ; and on the other hand the Company
had the option of demanding their loan back at any time,
say, after the first seven years during which they got a
guarantee of four per cent.

Four companies were then started to undertake to con-
struct and manage lines on the principle of private unaided
enterprise as was set forth in the Financial Statement of
Lord Cromer, 1881-2. These were the Nilgiri, the Delhi-
Umballa-Kalka, the Bengal Central, and the Bengal and
North Western Railways. This experiment, however,
proved a failure ; the first went into bankruptcy ; the
second and the third were in a bad way and on their request
were given a guarantee ; and the fourth was given a conces-
sion in the shape of a reduction in the Government's share
of the surplus profits, and the Tirhut' State Railway was
leased to it. 2

The attempt to persuade companies to take up lines
without a guarantee or with a limited guarantee advocated
by Lord Hartington and Lord Cromer thus had an un-
successful termination. Subsequently, in 1885, the Indian
Midland, and in 1887, the Bengal Nagpur, were undertaken
on conditions similar to those of the Southern Mahratta,
but with the difference that they were given a permanent
guarantee of four per cent, and one fourth of the surplus
profits in excess of all the interest charges. These three
companies, unlike the old guaranteed companies, were
only agents to work the property belonging to the Govern-
ment, besides raising the money and constructing the lines.
Their relations with the Government were thus different
and generally the terms with them were more favourable

1 Evidence of General Strachey before the Select Committee on the
East India Railways, 1884, paras. 38, 39.
a Imperial Gazetteer, Vol. III. p. 370.

42 INDIAN RAILWAYS

to the State. The State reserved the right to determine
their contracts after approximately twenty-five years, or
at subsequent intervals of ten years on repaying at par the
capital provided by them. In the absence of .any risk on
their part, it is pure euphemism to call them " assisted
companies/' The State could have raised the money
necessary for the construction of these lines had their
powers of borrowing not been restricted by the Parliament. 1
The policy of the Government has been to acquire these
railways by purchasing them right off or paying them
an annuity as provided in the contracts with them. In the
case of the three early guaranteed companies, the G.I. P.,
the B.B. and C.L and the Madras, Government postponed
their purchase in order to secure half the share in
their surplus profits. 2 The E.I. Railways Company
in 1879 was paid off in the shape of an annuity, while at the
same time it was allowed to defer a portion of it in the hands
of the Government to be regarded as the capital of the
new company. This arrangement was terminated in 1924,
and the railway is now managed by the State. A similar
action has been taken in regard to the G.I. P. Railways.
The Eastern Bengal, the Oudh and Rohilkhand, and the
Sind Punjab and Delhi were purchased and transferred to
State management. The Bengal Central was also similarly
purchased and incorporated with the E.B. The Madras
and the Indian Midland were acquired, but left under the
management of the G.I. P. and the S.M. Railways respectively
with which their amalgamation was deemed advantageous.
In the case of the S.I., the B.B. and C.L, the S.M., and the
B.N. Railways the course adopted has been to arrange for
the continuance of management after their purchase by the
State, with the original company or by a new company
closely related to the old one, but to secure more favourable
financial conditions for the State, by one or more of the
following methods : Reduction of the amount of capital
retained by the companies in the undertakings, reduction
of the rate of interest guaranteed by the State on such

1 Horace Bell, Railway Policy in India, p. 86.
a Supra.

SKETCH OF THE RAILWAY POLICY 43

capital, and modification in favour of^the Government of
the clause relating to A Jhe division of surplus profits. 1

The financial embarrassment of the Government had
not yet terminated, what with the falling value of the rupee,
the fear of famine, which hovers over India like a veritable
Sword of Damocles, and the fear of a Russian invasion,
which necessitated the construction of costly defensive
works on the North- West Frontier. The Indian Midland
and the Bengal Nagpur were given sterling guarantees
much against the will of the Government of India, who
were of opinion that the financial situation could be con-
siderably improved were gold guarantees offered no more.
Speedy railway extension was, however, a crying need, and
we therefore find the Government of India again suggesting to
the Secretary of State the possibility of railway construction
by themselves. The Secretary of State being averse to the
suggestion, nothing further was done or heard in the matter. 2

The strong disinclination of the Government of India to

increase the sterling liabilities of the Secretary of State,

which they knew by experience tended to depreciate the

rupee, may help to explain the inauguration of the new

policy of subsidy. In 1893, an offer of a subsidy for the

encouragement of construction of feeder or branch lines was

announced. A grant of free land was to be made to the

branch line, and the main line was to provide the rolling

stock and to work it for not more than fifty per cent, of

Is gross earnings, with a rebate or payment from the gross

irnings of the traffic interchanged between the two lines

o that the total profit of the branch line would yield a

dividend of four per cent. Thus a subsidy in the shape of

a rebate was substituted for the onerous guarantee.

These terms did not prove sufficiently attractive and in
1896 the branch line company was offered an alternative
of an absolute guarantee of three per cent with a share of
surplus profits, or a rebate to the full extent of the main
line's earnings in supplement of their own, the total being
limited to 3^ per cent on the capital outlay. In course

1 Administration Report of Indian Railways for 1914-15.
a Horace Bell, Railway Policy in India, p. 51.

44 INDIAN RAILWAYS

of time even these terms were found to be unsatisfactory,
and as a result of their criticism by Mr. T. Robertson in
1903, and the McKay Committee in 1907-8, the Government
revised them in 1913. The main alterations made were
that capital might be raised for the company partly under
the guarantee and partly under the rebate terms, and the
rebate permitted of an interest of five per cent per annum
on the capital.

While the branch or light railways, started nearly thirty-
two years ago, have served the needs of the country, and
have put on the path of prosperity many a district where a
heavy line would have proved uneconomical, the system
upon which they are founded is defective and needs a remedy.
They have aptly been called " a fifth wheel to the coach/'
for in some cases they necessitate a separate construction
staff ; and their Boards and their accounts are always
separate. 1 This system does not lead either to harmony or
economy and implies a retardation of a greater mileage.
The McKay Committee, seventeen years ago, were impressed
by the existence of the same evil ; " As a rule a promoter
requires rebate terms which will ensure a higher rate of
interest than that at which money can be borrowed either
by the Secretary of State or by the trunk line Company by
which the branch will be constructed and worked ; more-
over, a considerable amount of money is spent on promotion
and preliminary expenses, and a board of directors, a
secretary, and an office staff and premises have to be paid
for out of the revenues of the line, although the chief duties
performed by the branch line company consist in receiving
the earnings of the line from Government and distributing
them to the shareholders. In a number of cases it has
happened that branch lines have not fulfilled the expecta-
tions of their promoters, and the Government have been
compelled either to grant improved terms or to take over
the lines. We recommend that as far as possible the trunk
lines should own, as well as construct and work, their
branches." 2

1 Report of the Acworth Committee (Cd. 1512) para. 178.

2 Report of the McKay Committee (Cd. 4111). para. 28. Vide also
Rai Saheb C. P. Tiwari. Indian Railways, p. 365.

SKETCH OF THE RAILWAY POLICY 45

Again, these innumerable separate companies tend to form
for themselves spheres of influence within which they are
loath to construct new lines or permit any other railway
company to do so without demanding often unreasonable
financial concessions.

Conversant with these drawbacks, we must, however, not
ignore the fact that the system has permitted of the construc-
tion of lines for which the Finance Department had declined
to furnish capital and at a juncture when with the depre-
ciating rupee the sterling liabilities of the Secretary of State
were proving very burdensome and railway progress with
loans from England had almost stopped. The system
permitted of the raising of money for railway construction
in the country and thus made local capital interested in
these important national public works. The defects of the
system lead us to the conclusion that amalgamation of these
separate lines is highly desirable and that in future the main
lines should be the agency for their construction as well as
management. On the other hand acknowledging their
utility it must be conceded that if the State is unable to
provide the necessary funds private enterprise in this
direction should be encouraged. 1 If the latter alternative
be adopted it should be realized that the three-and-a-half
per cent guarantee or the five per cent rebate terms have
gone by the board and more attractive inducements should
be held out.

The formation of spheres of influence is not an evil
confined to branch line companies but one which must also
be laid at the door of the main lines. It is a concrete
symptom of the separatist tendencies of the private com-
panies in opposition to the interests of the State which owns
almost all the railways. This has resulted in obstruction or
delay to many a useful line in India and the plea brought
forward has been that the new line would steal its traffic
and endanger its profits. This argument cannot hold much
water, for the simple reason that while some traffic would be
diverted to the new line, the latter by opening up an adjacent
territory is likely to bring in more additional traffic to the

1 Report of the Acworth Committee (Cd. 1512) para. 180

46 INDIAN RAILWAYS

main line. It is thus found that it is easier to construct a
feeder to a State line than to a privately managed line which
is swayed by the paramount consideration of the effect of
the step upon its profits. It is indefensible that it should
be within the power of the main line to decide whether the
country shall have feeder railways or not. The needs of the
community must have a preponderant weight in this con-
sideration, especially in view of the fact that these companies
are guaranteed a minimum of profits by the State, which is
also the owner of the major portion of their capital. In
some European countries the sphere of influence of each
railway is allotted by the State within which it can demand
an extension by the railway concerned. And this is as it
should be. Sir William Ac worth thought it wrong policy to
recognize spheres of influence, and considered that the central
authority should have power to over-rule objections to new
construction based on such grounds. He thought that a
reasonable compensation might be allowed in some cases,
but, broadly speaking, he considered that respect for spheres
of influence should not be allowed to restrict railway develop-
ment in a country like India, which could profitably construct
and use a vastly larger railway system, and where the bulk
of the railway capital belonged to the State. 1

1 Minutes of Evidence, Acworth Committee, Vol. Ill, para. 5458.

Speaking on this subject in the Imperial Legislative Council in March,
1912, Sir Vithaldas Thackersey declared that too much weight was attached
by the Railway Board to vested interests in withholding sanction for new
lines when such lines were likely to divert some portion of the traffic of
any existing line. Referring to the objections of the main lines he asked
if the interests of the commercial and trading community which would
be immensely benefited by a shorter route, ought not to be considered ?
Ninety-five per cent of the shareholders, he urged, ought to have a
controlling voice when it was a question of the economic development of
the country. Proceedings of the Imperial Legislative Council, 1912.

In the same strain did Sir Ibrahim Rahimtoola attack the policy
of the Government in holding sacrosanct the sphere of influence
of the railways. " The Bombay Chamber of Commerce had to
press for, I think, nearly 17 years before they succeeded in obtaining
sanction for the Nagda-Muttra line, and now for the last few years they
have been pressing without avail for the construction of the Muttra-
Aligarh section/' Government had not sanctioned it because in their
opinion it would be "An invasion upon the sphere of influence of the
E. I. Railway. Now, Sir, I venture to ask," continued he, " What has
that got to do with the development of trade and the natural outlet of
produce ? Can there be any justification for talking about the sphere
of influence of particular railways belonging to the Government . . . ? "
Proceedings of the Imperial Legislative Council, 23 March, 1915.

CHAPTER II

PROBLEMS OF ORGANIZATION AND FINANCE

THE organization of railway control has existed from the
very commencement, though since then it has undergone
many changes with the increase in railway mileage and the
peculiar needs of the time. The early contracts with the
Company lines were not of a nature to create harmony of
interest with the Government and consequently a system of
supervision and control had to be introduced. In the
early days, communication was a subject within the juris-
diction of the Military Board, and it was only later when
the subject assumed a more diversified character that a
Public Works Secretariat was instituted, which still remained
military in character until 1866, when it was made civil. 1
From that late the Government of India turned their
attention towards decentralizing railway control, and their
first step in this direction took the shape of the appointment
of several local Consulting Engineers. The growing com-
plexity of business soon made the Government realize that
they must have some central authority to which to delegate
their powers of controlling details. Thereupon, Consulting
Engineers directly under the Central Government, were
appointed. The Presidencies of Madras and Bombay were
allowed to appoint local Consulting Engineers in considera-
tion of their importance. This centripetal tendency further
resulted in the appointment of a Director of State Railways
iu 1874, followed by a single Director General of Railways
exercising powers both over the State and the Company
lines. In the Secretariat the Director's position was that
of the Deputy Secretary for Railways. In 1896 the Civil
Works and the Railway branches were separated in the

1 Imperial Gazetteer. Vol. IV., p. 311.
47

48 INDIAN RAILWAYS

Public Works Secretariat, though it was still retained as
the instrument of the Central control over the railways.

This machinery combined the advantages of general
supervision with intimate local knowledge. The Public
Works Minister had direct access to the Viceroy whom he
met once a week, when he discussed with him matters of
important policy. Under him were a Secretary in the
Railway Branch and other officers. At the headquarters
of each railway there were the Consulting Engineers, who
were in constant touch with the company's officials and thus
kept the Secretary well-informed about the important
matters connected with the Company's management. 1

Though periodically modified, this machinery had not
kept pace with the growing complexity of railway affairs
and its defects thus became patent. The control of the
Government Consulting Engineers and their deputies,
and the Government Examiners of Accounts, in all matters
connected with the administration of the railways, was
found to be very extensive and reaching into the most
trivial matters. It was held by Mr. Thomas Robertson,
Special Commissioner for Indian Railways, 1903, that the
revised contracts with most of the railway companies had
brought about a state of affairs when the interests of the
Government and of the companies were no longer in conflict,
and that, therefore, the system of control then exercised
through the Consulting Engineers " could only result in
hampering development and retarding progress." 2 If
the railways of India, he added, were to be raised to and
maintained at the standard of usefulness at which they
could and should attain, the control of the railways should
be entrusted to a small board of specially qualified railway-
men, who, free from unnecessary trammels, should be
allowed to conduct the railways on purely commercial
principles. 3

Pursuant to these recommendations, the Government

1 Report of the Acworth Committee (Cd. 1512) Vol. IV. Statement No. 5.

2 Report on the Administration and Working of Indian Railways by
Thomas Robertson, C.V.O., Special Commissioner for Indian Railways
(Cd. 1713) 1903, paras. 36-42.

8 Ibid, para. 53.

ORGANIZATION AND FINANCE 49

of India abolished the Railway Branch of the Secretariat
in 1905, and appointed a Board in its place consisting of a
chairman and two members. All the detailed administra-
tive duties were delegated to the Board, the Government
retaining with them the power of decision with regard to
the railway programme and railway policy. The Board
was placed under the newly-created Department of Com-
merce and Industry and was thus separated from the Public
Works Department which remained in the charge of the
Member for Revenue and Agriculture.

In actual practice, the state of affairs did not show
much improvement. The Government of India still fre-
quently interfered with the independent exercise of power
by the Board, so that it was not able to dispose of its work
with either greater expedition or efficiency than the institu-
tion it had superseded. The McKay Committee investigated
the situation and recommended, inter alia, that the Govern-
ment should allow a free hand to the Board in technical
and detailed matters, and that in matters of importance,
the Board's opinions should be treated with special con-
sideration. They further suggested that the Chairman of
the Board should have the right of access to the Viceroy
and should attend the Council when required to do so by the
Government, and that, it being desirable that the power
of the Board should be concentrated in one man, the Chair-
man should be called the President and vested with the
power of over-riding his colleagues. 1 This was subsequently
found to be an obstacle to facile working and in 1914 the
President of the Board was divested of this power.

In explaining the necessity of the Board, Lord Curzon
had stated that " the central idea of a Railway Board was
that there should be a body of practical business men
entrusted with full authority to manage the railways of
India on commercial principles, and freed from all non-
essential restrictions or needlessly inelastic rules/ 1 This
hope, in spite of the modifications made in the Board was,
however, never realized. It lacked the status which the
financial and commercial importance of the railways

1 Report of the McKay Committee. 1908. (Cd. 4111) para. 33.

D

50 INDIAN RAILWAYS

warranted, 1 while from the very nature of its personnel it
failed to justify its raison d'etre. Its defects were the reverse
of those which had discredited the preceding system. The
control exercised by the Consulting Engineers over the rail-
way administrations was of too meticulous and hide-bound
a nature ; they were not always sufficiently experienced, and
consequently so at least, the railway companies contended
much prominence was given by them to the views of the
local Governments. On the other hand, the Consulting
Engineers kept the Railway Department sympathetically
and faithfully informed about " the needs, aspirations and
tendencies of local Governments in regard to railway com-
munications and to the commercial and technical aspects of
the operations of each individual railway and their effect
upon railway policy and operations at large/ 1 2 With the
establishment of the Board, the former well-diversified
organization suddenly converged in the person of three
isolated men, who, loaded as they were with multifarious
functions, failed to give the spirited lead to the railway
policy that was necessary. Its proper function was to shape
policy, to watch, to think, and to plan, but this it ignored,
and frittered away its energy in looking after clerical routine
work. That it was overstrained with its duties, cannot be
gainsaid. It was responsible for the detailed control and
management of the three State railways ; it had to exercise
the powers of the Governor-General in Council under the
Railway Act IX of 1890 ; it represented the Government of
India as owner of the company-managed railways and finally
advised the Government in respect of the general railway
policy. Its numerical strength was inadequate to cope with
such extensive and varied business, while the absence upon
it of a member interested in traffic turned it into a ponderous,
slow and impersonal machine with no eyes and ears for
public needs and grievances. 3

f J Of the total revenue of 6gJ crores contributed by ten principal heads
to the Central Government in 1920-1, the share of the railways was 27 J
crores. The outstanding railway borrowings amount to 366 crores or
65 per cent of the total public debt.

2 Written statement of the Chairman, Barsi Light Railway Company,
Minutes of Evidence, Acworth Committee, Vol. IV.

3 Infra, chap. VI.

ORGANIZATION AND FINANCE 51

The Board suffered from want of touch which could only
be remedied by frequent tours in the different localities.
And it was precisely this that its members were not able to
do. To add to its "sins it was powerless. The interfering
hand of the Secretary of State was observable in the decision
of details. Moreover, the representation of such important
interests in the Executive Council by a man who was
incidentally interested in the railways and who could give
the subject no more than a modicum of his time and atten-
tion, did not and could not conduce to the successful
administration of the Department.

The spirit of inertia and helplessness which pervaded the
Railway Department was brought to the notice of the
Acworth Committee by various witnesses. "We are told"
state the Committee " that letters were left unanswered,
that decisions were delayed indefinitely, that when charges
against the companies were made, the Board referred them
to the companies themselves and then washed their hands
of the matter ; that applications to the Board for redress
of grievances had been proved to be fruitless and so had
ceased to be made." 1

Equally important was the failure of the Board to formu-
late a steady policy of railway construction ; while in the
consideration of the lines constructed under its regime
future development was lost sight of. While 1,200 miles
of new lines were constructed, for instance, in the Madras
Presidency in the fourteen years previous to the establish-
ment of the Board, only 535 miles were opened during its
administration, and out of that 200 miles were in course of
construction when it was formed, and 142 miles were con-
structed by district boards or by other agency. 2 When it is
acknowledged on every side that the crying need of the
country is for more and improved means of communication,
this charge was serious and revealed unsatisfactory admini-
istration on the part of the Board.

The Acworth Committee, after a detailed review and
criticism of the Board's functions and status, came to the

1 Report of the Acworth Committee (Cd 1512) 1920-1, Vol. I. para. no.

2 Memorandum of the Government of Madras laid before the Acworth
Committee, Statement No. 34. Vol. IV.

52 INDIAN RAILWAYS

conclusion that a Member of Council in constant touch with
railway affairs was needed, and that he should further have
Ports, Inland Navigation, Road Transport and Posts and
Telegraphs within his portfolio. He should be the chairman
of the Indian Railway Commission, consisting of a Chief
Commissioner, assisted by a Financial Commissioner and
three territorial Railway Commissioners. Furthermore,
they expressed the opinion that the Railway Department
ought to have more uninterf ered responsibility for its internal
administration both from the Secretary of State and the
Government of India, while in its turn it should leave
greater discretionary authority with the local railway
administrations in their daily routine business. 1

Although a special Member in charge of railways has
not been appointed, nor a Railway Commission established,
the Railway Board has undergone a reorganization. A
Chief Commissioner has already been appointed who takes
the place of the President of the Railway Board and is
solely responsible for arriving at decisions on technical
matters, and is the adviser of the Government on railway
policy. The appointment of the Financial Commissioner
was also considered of special urgency and it was, therefore,
made in IQ23. 2 The new Board has been so designed as
to fit the department for the work of administering the
railways as a commercial concern, and is based on the
principle of imparting to it such a measure of independence in
its management of railway problems as is compatible with
its position as a department of the Government.

Reference has been made to the perennial difficulty in
India of finding ways and means for the adequate extension
of railways. In 1900 there was in the country a mile of rail-
way for every 82.36 square miles of territory, and for every
12,231 inhabitants. So that as far as railways per square
mile were concerned, India was worse served than most
countries in Europe. Mr. Robertson, who investigated
this problem concluded that more construction was neces-
sary to endow the railless tracts with a more suitable means

1 The Report of the Acworth Committee (Cd. 1512), paras. 126-8.
a Administration Report of Indian Railways, 1922-3.

ORGANIZATION AND FINANCE 53

of communication. At the end of 1906, the length of railways
open, without double track or sidings, was 29,097. In
addition there were 3,283 miles of new lines under con-
struction. This mileage was insufficient to deal satisfac-
torily with the traffic. The McKay Committee recommended
therefore, that the allotments for railway construction and
equipment should be increased beyond those of previous
years. India required a mileage of 100,000 in the near
future. To that end they fixed the annual expenditure at
12,500,000, equal to 100,000,000 in the next eight years.
They suggested that the Government would be well-advised
to take advantage of periods of easy money and to raise
funds in excess of immediate requirements. 1 The standard
proposed by them was, however, only once attained in
the next eight years, and the total expenditure during this
period reached 78 millions instead of 100 millions.

The war accentuated this irregularity and things went
from bad to worse. The Acworth Committee, which
inquired into the administration of Indian railways in
1920-1, found a state of affairs which convinced them of
the need of overhauling the railway machinery on its
administrative, but more especially on its financial side.
The then existing financial system did not permit of
proper provision of facilities or of rolling stock for the rail-
ways. In every direction and from all sections of the public
there were complaints of the inability of the railways to
cope with the traffic. 2 The situation was not quite new ;
it was markedly noticeable in the pre-war days, though
the war must have enhanced the existing difficulties of the
situation. Traffic restrictions were imposed on all the
principal railways and the exasperated witnesses before the
Acworth Committee testified to the loss the trade of the
country was suffering therefrom. The manufacturers and
merchants fixed their attention naturally upon the shortage
of wagons and blamed the railway companies and the
Railway Board. But while a more definite policy and

1 Report of the Committee on Indian Finance and Administration
(Cd. 4111) 1908.

a Cf. The Report of the Indian Fiscal Commission, 1922 (Cdm. 1764)
130-

54 INDIAN RAILWAYS

greater co-operation would have eased the situation, the
root of the evil was deeper and underlay the financial
system. With its irregular allotments, its programmes and
its system of lapse, the whole financial machinery was
equally rigid and unbusinesslike. It assumed that the
concern went out of business on each March 31, and recom-
menced de novo on April i following. Under the programme
the Railway Department was annually allotted a sum of
money determined by the state of the treasury, the money
market, and the prevailing condition of the country. The
system had been current for a long time, and had been
endorsed by the McKay Committee. That is surprising,
for its drawbacks were glaring. The crux of the situation
was the dependence of the railway finance upon the general
finances of the Government of India. The railway revenues
were applied by the Finance Member to the relief of other
departments instead of being applied to the requirements
of the railways. In 1919, for instance, the railways con-
tributed four crores of rupees to the general purposes of the
Government after they had paid their own working ex-
penses, full interest on all debt outstanding on their account,
and a further sum of about one crore per annum in re-
demption of the principal. 1

The result was that sufficient grants for capital expendi-
ture on development and extension, and even for the
ordinary functions of renewals and repairs, were not made.
In their work of regular improvements, the railways were
handicapped by their allotments being made according
to the condition of other departments. Again, funds were
allotted, it was complained, on the personality of the Agent
rather than on the need of the line. To add to this primary
irregularity, funds were curtailed or largely augmented
during the course of the financial year, creating an
uncertainty which endangered commercial success, and
resulted in waste of public money.

Nor was the control unimpeachable from the point of
view of financial orthodoxy. Although the railways have

1 Report of the Acworth Committee, 1920-1 (Cd. 1512) Vol. I. para. 59.
Infra, chap. iv.

ORGANIZATION AND FINANCE 55

been profitable since the beginning of this century, the
ordinary commercial principle of debiting revenue with its
full share was not observed. There was no replacement
reserve. During the. war when materials were not available
the Government spent the money away which should have
gone to form a reserve fund to be drawn upon when stores
were again available. "At a very moderate estimate
12,000,000 should have been available in a depreciation
fund at the close of 1921, all accumulated during the pre-
ceding five years/' l

Until the beginning of the present century, the Govern-
ment had to make up the interest on the railway capital out
of taxation, but since then railways have not only been
paying their expenses but have contributed considerable
sums to the public exchequer. For the last forty-five years
the net earnings of the railway capital has been over four
per cent, while the result of the last twenty-five years shows
that this figure has gone up to five or six per cent and even
more. 2 Considering that the Government have been paying
three-and-three-quarters per cent upon this money it is
difficult to comprehend why they should have hesitated to
borrow money for a concern commercially sound and yet so
essential for the country's development.

If the depreciation of such a valuable public property was
to be prevented, it was clear that two reforms were badly
needed, namely, a complete separation of the railway budget '
from the general budget of the country ; and the emancipa-
tion of the railway management from the control of the
Finance Department. We have seen that the system of
railway finance was not pursued on the lines of accredited
commercial methods, and it was necessary that maintenance
and renewals must be properly financed, and that with a
view to fixing hypothetical standards in advance a definite
scheme of finance was hatched apart from other Government
considerations. The control of the Finance Department
over the Railway Budget was not salutary and could not be

1 W. T. Stepheiison, Communications, p. 98. It may be observed that
the Legislative Assembly has decided to expend a sum of Rs. 150 crores
upon the rehabilitation of railways for five years from 1922-3.

2 Report of the Acwwth Committee, Vol. II. para. 170.

56 INDIAN RAILWAYS

so under the then existing system. Pressed for money from
all sides, it attempted to reduce grants to the minimum,
overlooking in this process the commercial character of the
railway. It had no practical knowledge of commercial
business or of railway operation and it ignored the ways
by which a solvent concern could raise money. It is
noteworthy that Mr. Robertson found the same situation
in 1903. " The great railway undertakings in India " he
wrote " are reduced more or less to the same level as other
departments of Government and are not administered as
large commercial concerns on the lines on which such under-
takings can only be really successfully worked." The crux
of the fallacy was the lack of differentiation between the
functions of the Government as guardian of the state finances
and the functions of the Government as a commercial entre-
preneur. It is the fundamental duty of the Finance Minister
to be cautious in meeting the claims for grants, for a greater
demand from a non-revenue department can only be met
ultimately by taxation. But the case of the railway was
different ; it was productive of revenue and consequently,
in meeting its requirement, no taxation would have been
involved. Its self-sufficiency was also a strong argument
for raising money on its net profits. The separation of the
railway budget was thus a much-needed, as well as a practic-
able proposition.

Another desideratum was that when once the Railway
Department had met its liability to its creditors it alone
must have the power of disposing of its balance either for
new extensions, or to form a reserve fund, or to use it to
reduce rates and fares, or improve the service. It was
essential that the development of railways be made depen-
dent on the earning power of this valuable property rather
than on the unappreciative liberality of the Finance
Department.

These ideas have transcended the stage of academical
discussion and are now placed in the sphere of practical
railway politics as the result of an Act. gassed in 1924,
separating the railway budget from thie general finances of
the country. The Act marks a veritable epoch in the

ORGANIZATION AND FINANCE 57

history of_Indian Railways, sundering as it does a Gordian
Knot which had continuously impeded railway progress. It
involves a recognition that progressive development demands
that railways be segregated from the maelstrom of demo-
cratic politics, and a realization, belated though it be, that
the loss incurred on the strategic lines should be borne not
by the railway revenues, but by the army or the general
reyejuies^ Military lines must be viewed in the same light
as military fortifications, but hitherto the loss upon them
was allowed to weigh down commercial railways with the
result that the prosperity of the commercial lines was unduly
discounted and the development of the railways hindered.

The Act provides for a definite annual contribution from
the net receipts of railways to be made to the general
revenues, and for a railway reserve fund which shall be
utilized for the improvement of the service and for reduction
of the charges therefor.

CHAPTER III

THE THEORY OF RAILWAY RATES

THE railway is one of the most essential industries in the
economic life of a nation and by far its most powerful
instrument of social progress. Transportation, and the rail-
way is its most effective means on land, aims at diminishing
the physical and geographical obstacles in the country. It
permits of a greater division of labour and thus promotes
the concentration and localization of industries in specially
adapted areas. Bombay, for instance, needs coal for its
cotton mills, but possessing none, it has to obtain it from
Bengal. Bengal, on the other hand needs cotton clothing
for its people, and since it does not manufacture it sufficiently
it has to import some from Bombay. The railway thus
fosters an exchange of commodities and thereby permits of
a national and international division of labour. Were the
facilities of railway conveyance absent, each locality would
practically have to be self-sufficing, there would be little or
no exchange of territorial products and the national wealth
in consequence would remain unexchanged and undeveloped.
Coal has existed in many districts of India, but until the
advent of the railway which made quick and cheap transport
possible, it was not mined to any great extent, and that rich
mineral remained undeveloped for ages.

Conveyance, before the era of the railway, was costly,
tiresome and unsafe for passengers, and expensive, slow
and risky for goods. The number of passengers who
travelled or the amount of freight carried was, therefore,
insignificant. To-day enormous numbers of passengers
and quantities of goods are carried swiftly, cheaply and
safely across continents ; distant markets are linked to-
gether ; every locality has scope for specialization, confident

58

THE THEORY OF RAILWAY RATES 59

of finding markets for its products and of having its wants
supplied by other markets ; and the luxuries of yesterday
have_,becpme the necessities of to-day and are within the
means of the average man.

While the railway has much in common with other
industries, it has this peculiarity that it does not sell the
merchandise it conveys, but merely sells its service, which
is transportation. In selling its service it is motivated, like
all commercial business, by the idea of making profits.
Now the price of its service enters into the cost price of every
commodity it carries, and this brings into prominence its
national character. The miner and the mineowner, the
agricultural labourer and the farmer, the factory worker and
the capitalist, the retail and the wholesale merchant, every-
body engaged in an industrial or commerical vocation,
nay, in fact, every individual as producer or consumer, is
vitally interested in the charge which this industry levies.
Railway is thus the woof around which is woven our social
and economic life. Verily did Bacon measure the importance
of a good means of transportation when he said : " There
be three things which make a nation great and prosperous,
a fertile soil, busy workshops and easy conveyance of men
and commodities from one place to another/'

If the charges of railway service affect every hearth
and home, it behoves us to examine their basic principles.
Preliminary to this examination, we must comprehend
the nature of two of the chief characteristics of a railway,
namely, the law of increasing returns and the principle of
joint costs.

As with every large scale industry, capital on a liberal
scale must be provided before any appreciable earnings
can be expected from a railway undertaking. Land must
be acquired, road-bed made, rails laid, buildings erected,
rolling-stock purchased, staff hired, in short, much capital
sunk. The output or the gross receipt of this is, however,
very small, in fact, one-fifth or one-tenth of the total capital
invested. This is an annual turn-over much smaller than
in ordinary manufacturing concerns, and marks the railway
out as above all an industry of a large, fixed investment.

60 INDIAN RAILWAYS

This point as well as the fundamentals of the theory of
charging rates, is well explained by a glance at the expenses
of a railway and their relation to the amount of traffic.
The subject is complicated and conditions may vary so
much between different times and places that it would be
hazardous to lay down any definite rules. The expenses of
a railway may primarily be divided into capital charges
and operating charges. The proportion of the former to
the latter may roughly be placed at thirty per cent to
seventy per cent. Capital charges, like interest on debt,
rentals, taxes and contributions to the sinking fund, have
to be incurred whether there be large or little traffic, or,
in other words, they are independent of the volume of traffic
upon the line. Operating charges, like maintenance of
way, works and stations, locomotive expenses, carriage and
wagon expenses, traffic expenses and general expenses, are
generally half variable with the amount of traffic and half
invariable. On the whole, therefore, approximately two-
thirds of the railway expenditure are constant and only
one-third varies with the volume of traffic. 1

The preponderant proportion of constant costs in the
expenditure of a railway brings out clearly into relief the
fact that the industry obeys the law of increasing returns
or diminishing costs. This feature may be condensed in
the following formula, if it costs x to deal with 1,000,000
units of traffic, 5,000,000 units, with a constant track
mileage, will not mean a fivefold expenditure 5x, but
something less, viz. : |x + (|x X 5) = 3x. 2 It implies
that until the stage of congestion or saturation is reached
the railway possesses a plant which is not used to its full
capacity, so that when later the volume of traffic expands,
it is able to carry the denser traffic at a proportionately less
cost. Or, as Sax explains, the railway is so peculiarly
circumstanced that with a given degree of intensity of
traffic, the cost elements require a certain minimum outlay,

1 Ripley W. Z., Railroads : Rates and Regulations, pp. 55,56.

The distinction between constant and variable expenditures is im-
portant because the principle of classification is the first corollary from it.

a Sir W. M. Acworth and W. T. Stephenson, The Elements of Railway
Economics , p. 55.

THE THEORY OF RAILWAY RATES 61

from which point the cost does not grow in exact proportion
to the traffic but lags behind the latter. 1

This has a special significance for the traffic manager.
When traffic is scanty and the constant overhead expenses
heavy on his line, he has an incentive to offer lower than
ordinary rates to attract more traffic. He realizes that the
constant costs go on whether a train be fully loaded or
half. 2 To run it as fully loaded as possible is profitable, for
every addition in the paying load largely decreases the cost
of operation per ton. To attract more traffic and thus
utilize more fully the unused or excess capacity of the plant,
he offers specially low rates which cover the special expenses
and contribute a sum, however small, towards the constant
expenses. This is the genesis of exceptional or discrimina-
tive rates.

Besides the fuller utilization of the existing plant, the
replacement of a less efficient by a more efficient plant also
brings into play the law of increasing returns.

An equally important, yet a more controversial feature
of the railway is that the expenses of its service are incurred
jointly. Railway is not unlike certain other industries in
which, with the same outlay, the production of one com-
modity inevitably results in the production of another. The
classical economists had noticed this phenomenon in the
case of wool and mutton, coal and coke, or beef, hide and
tallow. 3 This principle has been refined, elaborated and
applied to ordinary industrial undertakings by Marshall, 4
while its bearing upon the railway has been skilfully exposed
by Taussig. 5 Pigou has brought interesting light to bear
on the subject by arguing that the service of transportation
is homogeneous and, therefore, cannot be performed at joint

1 E. Sax, Die Vcrkchrsmittel in I'olks und Staatswivtschaft.

2 The fuctional resistance of an empty car ib double that of a loaded car,
weight for weight ; and hence the carriage of the former is proportionately
more expensive than that of the latter.

3 Mill, Principles, Bk. III. Chap. xvi. S. I. The physical joint production
discussed by Mill does not obviously apply on the railway. The peculiarity
of the railway is that its products are not physically inevitable and hence
they can be varied according to need. Again, every joint product of the
railway has some special expenses incurred for it alone.

4 Marshall, Principles p. 388-90 ; Industry and Trade, p. 192-3.

5 Taussig, Principles Vol. II. p. 395-9 ; A contribution to the Theory
of Railway Rates, Quarterly Journal of Economics, 1891.

62 INDIAN RAILWAYS

costs. 1 The railway installation, expensive and with a
large sunk capital is devoted to the carnage of heterogeneous
merchandise and differently graded passengers, and con-
sequently the cost of moving each article or passenger is
impossible of calculation. While there may appear some
uniformity in the passenger service, in spite of the different
classes in which they are conveyed, this is not true of the
freight service. That there may be a few trains carrying a
homogeneous article like coal or iron ore does not vitiate
our argument. Generally, a freight train carries a medley
of commodities like sesamum oil and silks, books and betel
leaves, tables and tiles, etc. A few of these may be in car
loads, but the others, varying in value, bulk, weight and
method of packing, may probably be stowed in the same
wagon and be hauled by the same locomotive on the same
track and worked by the same men. Further, the rails, the
bridges, the tunnels, the signals and the administrative staff
which are used for the conveyance of passenger traffic,
equally serve the purpose of the freight traffic. In brief,
the entire railway plant is used to perform a multitude of
dissimilar services and it is, therefore, impossible to calculate
what portion of the total outlay should be charged to any
particular passenger or consignment. In fixing rates, while
the ideal plan would undoubtedly be to charge each
passenger or commodity with his or its proper share of
common or overhead expenses, under our ordinary system
of accounting, this is incalculable. If individual costs are
difficult of assignment, they cannot be used as the basis of
railway rates. 2

So far, the two salient features of railway as an industry
have been discussed, but before grappling with the theories
of rates, it would be profitable to revert to the discussion of the

1 Pigou, Wealth and Welfare, Chap. xiii.

2 Apropos this Sir George Gibb explains, "A railway is worked as a whole,
and though many items can be separated in the accounts, and allocated
to particular services, the residue, which no knowledge and no ingenuity
can allocate, is so large that the result must always be a very distant and
doubtful approximation to the real fact/' Introduction to British
Railway Position.

Certain items of expenditure like loading and unloading are separable
and calculable, but above these there are the large items of joint
expenditure.

THE THEORY OF RAILWAY RATES 63

railway costs and pursue it farther to its logical conclusion.
It was observed that of the total railway expenses, two-
thirds are generally constant and invariable and one-third
varies with the volume of traffic on the line. Again that, on
this supposition the traffic manager was justified in charging
specially low rates to attract more traffic on the line,
provided they covered the out-of-pocket expenses and left
something to cover the general expenses, although they
did not contribute their full share towards the fixed charges. 1
On the supposition that the plant was not used to its full
capacity, the traffic manager would be perfectly justified.
He would use the argument that if he did not take the new
traffic there would be a loss ; if he did, the loss there certainly
would be, but it would be less. His position would be
unassailable if in the event of two losses he preferred the
smaller one.

The fundamental assumptions underlying this theory and
practice are the existence of considerable constant expenses
and an unused capacity in the plant. But it is possible to
conceive of a situation when these fundamental assumptions
lose their force and validity. In our previous consideration
of the expenses of a railway, we viewed them for a limited

1 This point is so important and the practice so frequent that it were
best to illustrate it by a concrete instance. Supposing the normal profitable
rate for a certain commodity is a rupee per inaund and that it cannot bear
a rate higher than 6 annas. Should the traffic manager take it or not ?
It would seem pnma facie that he should not carry it since the average
charge of carriage is a rupee and the commodity in question can bear a
rate no higher than 6 annas. Were it carried the railway would lose 10
annas ; and in view of the fact that a railway is not an eleemosynary
institution, it would attempt to recoup the loss by charging higher in
another direction. But arguing on the principle of joint costs, the traffic
manager may decide to carry it even at 6 annas. He may roughly cal-
culate that of the average rate of a rupee 5 annas cover the moving charges,
5 annas cover the fixed operating charges, and 6 annas cover the capital
charges. He would much prefer to carry one article which covered all the
charges. But in the present case, if the article is to be carried no more
than 6 annas can be expected. The traffic manager under this predicament
may reason out that this sum would cover the charge for actual movement
and leave an anna for the fixed operating costs. There would be nothing
left for the capital charges. But in accordance with the principle of joint
costs, the constant expenses go on whether the traffic be great or small.
He would then justify his action by arguing that the sum received would
contribute full movement expenses, something towards fixed operating
expenses, besides it would mean a better utilisation of the rolling stock,
and finally, it might prevent a rival carrier from taking it.

64 INDIAN RAILWAYS

period. But the large problems of the railway relate to
long periods.

Let us suppose that a traffic manager, seeing that his line
is hungering for traffic, offers low rates which attract more
traffic, and this necessitates the addition of a wagon to his
train. He argues precisely as in the aforementioned case,
that since the constant costs go on whether the additional
wagon were carried or not, it would be profitable to carry it
provided it paid its variable expenses. In a way his
decision would again be unimpeachable. But supposing he
added three or four or five wagons on the same consideration
until the tractive limit of the locomotive were reached.
At this stage the potential capacity of the locomotive would
be in full play, and the law of increasing returns would cease
to work. Thereafter a new locomotive would perforce have
to be provided, which, in the beginning, would only carry,
say, three wagons. Is the expenditure of the new locomotive
chargeable to these three wagons only ? Not, if we take a
long-sighted view of the matter. All the wagons, in fact,
which gradually overtaxed the capacity of the first loco-
motive and thus made the use of the second inevitable, must
be held accountable for the new expenditure. All the
tonnage in the wagons which were carried by the first
locomotive after its hauling capacity was reached, must
share the burden of the new locomotive. Thus, a gradual
increase in traffic will lead to a further expenditure in the
shape either of a new locomotive, or more spacious wagons,
or heavier rails, or stronger bridges, or wider tunnels, which
would all imply a growth in overhead costs. In other words,
the constant expenses do vary, only they do so in a spasmodic
manner. Viewed over a long period of time the difference
between constant and variable costs disappears. In this
light, we must modify our generalization and state that the
railway obeys the law of increasing returns until the
operating capacity of the plant is reached. 1 Without unduly
stretching this point, it may then be stated that while spec-
ially low rates are justifiable when the line has poor traffic,

1 This point is exposed in detail by Lorenz. Taking the period from
1895 to 1910, he explains that in the United States the expenditure upon the
maintenance of way and structures, ordinarily classed as mainly constant,

THE THEORY OF RAILWAY RATES 65

the force underlying this practice is considerably weakened
when the line is congested and the law of decreasing costs
has become ineffective. If the limit to the unused capacity
of the plant is reached, no railway can afford to carry
additional traffic at a rate which merely covered the small
out-of-pocket expenses. The full contribution of the traffic
to the fixed operating charges and the capital charges
must be considered.

We are now in a better position to discuss the theories
of railway charges. We concluded our investigation into
the nature of railway costs that the expense of performing
a single service can seldom be isolated, for its performance
is part of a process which is concerned with numerous
services in the same class. If the prime or special cost of
a service is indeterminable it cannot surely be made the
basis of railway charges. Pitched against this difficulty,
the traffic manager resorts to charging rates which the
traffic will bear, that is, bases his rates upon the value of
service or demand for it. What is of importance to
him is that all the items carried must contribute a total
sum to cover the total joint expenses, while the special,
prime or individual cost is a matter of small moment to
him.

The principle of charging what the traffic will bear,
determined as it is upon the value of or demand for the
service, affords an indefinite scope for the personal judg-
ment of the traffic manager. It does liot conform to the
exact and immutable laws of science, it is an art to be exer-
cised as Bagehot puts it, "in a sort of twilight ... in an
atmosphere of probabilities and of doubt." Again, so far
as it is based on the principle of joint cost, it is negative and
passive in character " giving opportunity and motive for
price discrimination, but offering no guidance as to what

varied from 100 to 216 ; while the general expenses, which ordinarily are
not variable with traffic, changed from 100 to 166. Quarterly Journal
of Economics, 1908.

Marshall states that in the thirty years 1882-1912, the paid up capital
of the British railways increased from 786 millions to 1,335 millions,
although the aggregate length had increased only from 18,457 miles to
23,441. Industry and Trade, p. 458.

66 INDIAN RAILWAYS

method the discriminations will pursue." It is, therefore,
at best subjective, negative and empirical. It is equally
potential of promoting social and economic progress as of
retarding it. On its socially useful side, the traffic manager
puts a lower rate upon cheap and heavy or bulky articles
than upon more valuable or lighter ones. The higher classes
of freight are made to pay, not only their proportional share
of the joint costs, but in addition to defray that charge of
the joint costs which the lower-rated articles cannot bear
to pay. 1 In this sense it is truly tempering the wind to
the shorn lamb, or helping the weaker members of the
community. Value being made the measure of ability
to pay, this practice renders possible the carriage of useful
yet cheap and bulky articles like salt, coal, lumber, iron ore,
etc., which otherwise would not move. For if these articles
were charged the average rate their cost of transport would
be so great as compared to their prime cost, that their
carriage would become an uncommercial proposition. 2

The principle of joint costs thus permits of and justifies
discrimination. It seems eminently ethical and bears many
traits of resemblance to state taxation, and there is a school
which presses the resemblance farther and contends that
the traffic manager, in fixing charges, bears in mind the
" leistungsfahigkeit " the capacity to bear of every
passenger and article, in the same wise as does the state in

1 Vide report of the Rates Advisory Committee, 1920 (Cmd. 1098). It
may, however, be stated that in actual practice it may happen that the
carriage of low-rated articles may be more profitable to the railway than
that of high-rated articles.

3 Sir William Acworth in The Railways and the Traders cites Finck to
say that " A careful investigation shows that, under ordinary conditions
under which transportation service is performed, the cost per ton in some
instances may not exceed one-seventh of a cent, and in others will be as high
as 73 cents per ton-mile on the same road/'

Criticising the view " that if a railway or other partial monopoly were
forced to charge the small price to all, that price would be lower than the
average of its charges," Marshall explains that " there are some cases in
which this result would follow. But in other cases the monopolist would
simply dispense with those of his sales, which only could be made at a
lower price ; with the result that some of his customers would be seriously
prejudiced ; and the uniform price which he charged would probably be
higher than the average of those which he had previously charged."
Industry and Trade, p. 418*

Vide also Ripley, Railroads : Rates and Regulation, p. 169.

THEORY OF RAILWAY RATES 67

imposing taxes. 1 The first-class passenger ought to pay
more than the second W third-class passenger, not because
his seat is better upholstered or because he has more space
or comfort at his disposal, but because he can afford to
pay more. So also ought the luxuries to be charged high
rates in order that the necessities may be carried at low
rates. In this fashion only can the social welfare be pro-
moted. This view is made to rest upon an ethical economic
basis ; tempering the wind to the shorn lamb.

This ethical economic interpretation of what the traffic
will bear has countered opposition from a school which
deny any valid analogy between taxation and rate-making.
They hold that the motive underlying charging what the
traffic will bear is demand. Transportation service, it is
explained, is produced jointly for a thousand and one hetero-
geneous passengers and commodities, and since the indi-
vidual cost is difficult of allocation, every item is charged
according to the nature of the demand for it. 2

Whatever may be the rationale of the principle, there is
no getting away from the fact that it is universally adopted
in railway classification. Be it in conformity with Cohn's
" leistungsfahigkeit " or Taussig's " demand/' the articles
which a railway carries are not all charged uniformly, but a
discrimination is made. They are grouped into several
classes and a rate fixed for each of these. Value thus plays
a leading role in the classification of merchandise, although
weight, bulk, shape, distance, regularity of shipment, method
of packing, etc., are also factors which influence it.

The principle is backed by historical precedents and by

1 G. Cohn, Die enlische Fiscnbahnpolitik der letzen zehn Jahre, p. 65-84.
Cohn lays great emphasis upon the taxing power of the railway managers
and continues that it should, therefore, be the state which should exercise
it. He is sceptical of the wisdom and fairness of a railway official.

The analogy of railway charges with taxation, while not avowed, is
implied in the writings of Hadley and Sir William Acworth. Similarly,
the First Report of the Inter-state Commerce Commission stated, " The
public interest is best served when the rates are so apportioned as to en-
courage the largest practicable exchange of products between sections of
our country, and with foreign countries. This can only be done by making
value an important consideration, and by placing upon the higher classes
of freight some share of the burden that on a relatively equal apportionment,
if service alone were considered, would fall upon those of less value."

3 F. W. Taussig, op. cit.

68 INDIAN RAILWAYS

analogous practice in commercial business. On the English
canals, the tolls which were levied, apart from the cost of
carriage, were graded according to the respective values of
the articles. In the schedule of maximum tolls on the canals
sanctioned by Parliament, we find that iron ore, for instance,
was charged less than merchandise. So on the turnpike
roads a dog-cart was charged as much as a heavy carrier's
cart. This was against the cost principle because the cart
assuredly must have done greater damage to the roadway
than the light dog-cart. The main consideration even then
was what the traffic will bear ; and since the dog-cart was
the vehicle of a well-to-do person, it was charged more
than a cart which was the instrument of a poor man to eke
out his livelihood. As Sir William Acworth states : " His-
torically this theory has been recognized and approved by
English legislation from the time when Adam Smith ap-
plauded the equity of statutory turnpike tolls at the rate of
one shilling for a light carriage, and eightpence for a heavy
dray, through the whole series of canal Acts and railway
Acts ... to 1891-2." l

The shipping companies, when they carry iron, steel or
some such heavy and cheap cargo as ballast, and charge it
very low rates, act in conformity with the same principle.
Nor is the principle practised only in the transportation
business, it is common to all business where the costs are
joint and indistinguishable and the overhead expenses
considerable. When use was found for cotton-seed, its
price was determined, not according to what it cost con-
jointly with cotton, for cost was indeterminable, but accord-
ing to the demand for it, that is, on the principle of what the
traffic will bear. The big department stores often have
different prices for the same articles ; higher on the first
floor than in the bargain basement. They also show higher
prices for articles at the beginning than at the end of the
season. The dentist charges a higher fee to the patient who
resides in the West End than to another who hails from
the East End. All these persons act on the same principle
as does the traffic manager who charges a specially low rate

1 The Theory of Railway Rates, Economic Journal, 1897.

THEORY OF RAILWAY RATES 69

for the carriage of a commodity because of its special need,
its inability to bear a higher charge.

In spite of its air of arbitrariness, the principle is potential
of immense benefit to the community. As contrasted with
the cost of service theory its power of developing new
territories is undoubtedly great. This dynamic force is
abundantly witnessed in the penetration of the west and
north-west of the United States of America. All this expanse
of territory would still have been the haunt of the coyote
and the bison had not the railway populated it by offering
to and from it specially favourable rates. There was a time
when people were doubtful if the iron and steel industry could
ever flourish in America when coal and iron were produced
at such distant localities as Pennsylvania and the Lake
Superior. The expense of transporting iron ore from the
Lake to the Black District, it was feared, would add too
onerous a charge upon its prime cost to enable the industry
to work on anything like a profitable scale. These fears
were quickly dispelled by improvements in the railway
coupled with specially low rates with a view to the develop-
ment of markets and the maximum flow of trade. 1

The spectacular development and prosperity of the United
States would manifestly have been delayed had the railways
there been compelled to follow the cost of service principle of
rate making. Now in Europe, especially in Germany, mathe-
matical scales, based on cost and distance, are favoured.
And while admitting that this restricts the liberty of action
of the traffic manager and cramps certain industries, it is
claimed that the system leaves little scope for personal
discrimination, that it is more stable and simpler, and that
it provides for a greater approximation to justice. But
while in the older countries such a system may work satis-
factorily, it is certain that in the United Stares with its long
distances and its raw materials lying scattered about the
country, a mathematical system based on costs and distance
would not have proved equally efficacious.

Sir William Acworth elucidates the principle by enunciat-

1 Infra, Chap. IV. for the great growth of the Indian export trade in
grain after 1880.

70 INDIAN RAILWAYS

ing three rules for the guidance of the traffic manager,
(i) Get traffic. The more traffic earned, the less it costs to
carry. Therefore, first and foremost, get traffic. (2) Charge
no rate so high as to stop the traffic from going : subject to
(3) Never make a rate so low as not to cover the additional
cost incurred in dealing with the traffic to which the rate
applies. 1

We have explained the principle of charging what the
traffic will bear, its historical origin, and its fortification by
analogy with other business. Rightly is it the governing
principle in freight classification. We have seen that if
practised with an eye to social considerations its benefits
are manifold, especially in a country which stands in need
of development. But explanation is not synonymous with
justification. It is not an impeccable principle and as
actually wielded by the railway officers it has been attended
with much abuse, injustice and mischief. From the very
commencement it has been attacked by the traders as devoid
of simplicity and definiteness of application. It has been
contended that it gives to the railway management a
governmental power not unlike the power of taxation, and
that, therefore, any arbitrary exercise of it reacts unhealthily
upon the trade and industries of the country.

It may be stated at the outset that many an objection
of the trader arises from a failure to appreciate the peculiar
nature of railway expenditure. He is apt to discount the
usefulness of discrimination, so that he views with suspicion
a system of charging in which two consignments are charged
differently, notwithstanding that the conditions in which
they are carried may be dissimilar. The peculiar terms in
which the policy is couched, is again apt to arouse his mis-
givings. It would have conduced to a better appreciation
of it had it been styled : not charging what the traffic
cannot bear, or charging what the trade could properly and
profitably pay. Further, the interests of the trader are only
one-sided. He does not mind high charges so much as
differential charges ; for the former he often can shift on to

1 Sir William M. Acworth and W. T. Stephenson, The Elements of Rail-
way Economics, p. 78.

THE THEORY OF RAILWAY RATES 71

the consumer. He desires that he should be treated on
the same terms as his rival. And since he is told that dis-
crimination is inherent in the value of service principle, he
looks askance at it and demands that rates be fixed on the
cost of service or the distance basis. But all discriminations
are not unjust, and it is well to remember that the word
discrimination is not derived from crimen (crime), but from
discriminare (to discern). 1

However, just and socially unexceptional the theoretical
exposition of the policy may be, its actual practice has
brought it into bad odour with the public. Or, to put
it differently, while the principle of differential rates is
just, all differential rates are not just. One of its basic
principles is that no charge should be so high as to restrict
the flow of traffic. But this principle has been observed
in breach by many a traffic manager of the old regime.
In India, until recently, the railways were pursuing a policy
of charging rates which repelled rather than attracted
traffic. 2 In the same way in Great Britain the Select
Committee of 1888 recorded their opinion that, " According
to the evidence of railway managers who appeared before
us, no general principle or system of fixing rates has been
adopted on any railway in this country. The charge for
conveyance, they informed us, was such a sum within the
power of the company as they thought the traffic would
bear, having regard to competition both of other means
of conveyance and other districts or markets, in other words,
as much as could be got, and without reference to the cost
to the company of performing the service/' 3 This is not

1 F. Fetter, Economic Principles, p. 381.

a Infra.

9 Compare the following : " The day of the old railwaymen, with their
purely practical training and their rule-of- thumb methods, has passed.
Railway undertakings are to-day organized on so vast a scale that their
management is beyond the grasp of the practical man. Millions of money
can be saved on English railways, for the benefit partly of the shareholders,
but in much larger degree of the community at large, if the rising railwaymen
of the present and the immediate future can be taught to establish and to
justify their practice on the basis of sound economic theory, continuously
checking the application of theory by familiarity with that which has been
done or is being done or attempted in other places outside the range of
their own possible individual experience/' The Elements of Railway
Economics, Preface, op. cit.

72 INDIAN RAILWAYS

charging what the traffic will bear, it is charging what,
according to the traffic manager, thp .consignment ought to
pay. It is not unlike the policy of " demander a la mar-
chandise tout ce qu'elle peut payer." Where, again, is the
guarantee that the total remuneration which a railway
thus obtains shall be no more than what is socially reason-
able. It is in this sense, that the principle has been largely
practised in America, and it is there that its evils have been
most conspicuous. The series of regulative rates laws
passed there from 1887 to 1920, as well as the decisions of the
Interstate Commerce Commission and the Supreme Court,
are ample testimony to the dangers of the practice and the
vagueness of the theory, and point to the urgency of State
supervision and control.

Does the theory in any way supply a remedy against ex-
tortionate or excessive rates ? It is argued that it is not
in the interest of a railway to charge excessive rates and that
a limit is placed upon its power in the shape of value of
service to the trader beyond which no charge can be imposed
without loss of traffic. A self-adjusting power is thus claimed
for the railway. When the accusation of unduly high rates
is levelled against a railway, it is not uncommon for its
advocates to retort that there is no evidence of it. the trade
goes on and therefore the rates are reasonable. 1 The
assumption underlying this argument is not, however, valid.
In the case of those articles which are necessaries of life,
although the transport price of them is a significant factor
in their market price, a slightly higher rate would not curtail
the demand for them, and therefore could easily be passed
on to the consumer. 2 A small extra charge upon the carriage
of salt or coal would not affect the demand for them, and the
consumers would have to pay the added burden. Or, it
may happen that the producer, in fear of competition,
would either lessen his profits or introduce fresh economies
in production. The extra charge would then be borne by
the producer. In any case, the railway would successfully

1 See the reply of the President of the Railway Board to the Resolution
in the Imperial Legislative Council, March, 1912.

a The possibility of competition or of a substitute for the article must
not be overlooked.

THE THEORY OF RAILWAY RATES 73

be able to impose a tax upon the industry, and so long as
it did not kill or divert the traffic in it, it would consider
its action justified.

There is a further, consideration. The limit of reasonable
charging is not a definite point, but a margin within which
the rate may be placed anywhere ; and it is here that the
traffic manager has scope for using his power of judgment.
It must be clearly recognized that there are two limits to
any rate. The lower limit is fixed by the cost of service, a
rate below which the railway cannot bear as it would be
unprofitable. The upper limit is fixed by the value of service,
above which a rate would be unprofitable to the trader.
Now, in the case of a low class article the price of whose
carriage was substantial as compared with its cost of
production were the rate fixed near the lower limit many
marginal producers would begin to produce, for the low cost
of transport would assure them some profit. A low rate thus
has a tendency to expand the field of commerce. Contrari-
wise, a rate fixed at or above the upper limit would drive
many producers off the field, and thus contract the field of
commerce. But to judge whether an existing rate is high or
not, a lower rate must be tried and its effects upon the
traffic observed. So that to declare off-hand that an existing
rate is reasonable because the trade moves out, is uncon-
vincing. The existing rate may have prevented a stream
of traffic which would have been impelled by a lower rate.
It follows then that the principle of charging what the
traffic will bear may be practised so as to exact all that the
traffic will bear. It is thus empirical and affords no norm
of what the charges shall be nor does it provide for reason-
able rates. 1

There is another objection to the principle, and that is
the difficulty of differentiating between the motive to build
up a business and the motive to destroy it. These motives
may work at one and the same time. A discriminatory

1 " The risk, commercial conditions, competition, what the traffic will
bear, and all the other well-known factors in empirical rate-making, when
taken by themselves do not afford secure anchorage. One may give due
weight to all those things and be utterly at sea when really critical or nicely-
shaded rate questions arise/' B. H. Meyer in the Publications of the
American Economic Associations ; Vol. IX. 1908.

74 INDIAN RAILWAYS

rate may be imposed both with a view to put an infant
industry on its legs and at the same time to injure some
rival industry. If questioned, the railway would always
defend itself by laying emphasis upon the constructive side of
its move while concealing its destructive effects. 1 Motives
are always difficult to judge, and since the value theory is
negative it provides no handle by which the state can judge
and stop a prejudicial practice.

One more consideration obtrudes itself ; can the railway
be trusted to act pre-eminently according to social needs ?
Can we be confident that it will mete out " equitable con-
cession to the weaker members of the community ? " Were
the railway managed by the State it may be presumed that
in deciding which industry is weak and needs concession,
social consideration would be its guiding star. But the
primary motive of a privately managed railway is to earn
the maximum profits tempered by competition and incident-
ally by its sense of service to the community. So also it is
not inconceivable that in helping a weak industry it may
be artificially bolstering up an inefficient and uneconomical
industry while handicapping another fitter to survive.
Under such circumstances it is easy to perceive that the
rates policy of a railway based on this principle, may retard
the industrial progress of the country.

The cost of service theory has always been a rival to the
value of service theory as the basis of reasonable railway
charges. Traders have often insisted that rates should be
fixed on the basis of the cost of service, which they assumed
was simple and easy of calculation. At first sight the
theory does seem balanced, symmetrical, and definite as
compared to the uncertain and indefinable character of the
other. Theoretically it seems but fair that the charges
levied upon two consignments should be proportional to the
costs 2 incurred by the carrier in performing the two services.

1 Marshall, Industry and Trade, p. 417.

" Railway officials, free from restrictions, could make or unmake manu-
facturing concerns in those days (1860-80) and could do so still had we
not at least a court of appeal and laws against obvious discriminations."
Andrew Carnegie in the Century Magazine, March, 1908.

a The term cost is used in a variety of meanings. In its broadest sig-
nification it means all the expenses involved in the performance of a service

THE THEORY OF RAILWAY RATES 75

But we have observed that in actual practice the cost of the
individual service is indeterminable and cannot bear any
relation, even if determined, to the expenses involved in
performing that service. Thus, however desirable may
certainty and definiteness be, expediency and the rule of
thumb may actually be preferable as economical and
socially beneficial.

Even if it be conceded that the cost of carrying a consign-
ment were ascertainable and were charged, the result would
be highly detrimental to trade. For, while the burden upon
the commodities which combined small bulk or weight with
great value would be lessened, it would be heavily felt by
the raw materials whose bulk or weight was large as com-
pared to their value. Traffic in the latter would be precluded
for the simple reason that the charge for their carriage would
be greater than they could bear. To-day these are charged
so much below the average rate that any attempt to raise
their charges would restrict their movement. This would
tell seriously upon the tonnage and consequently upon the
earnings of the railways, besides jeopardising the existence
of many an industry. The impetus which silks and other
high grade articles would receive by this system would be
more than offset by discouragement to the low grade
articles. 1

Equally vulnerable is this theory from the ethical economic
point of view. Would it seem equitable if, like weights of

from the interest on capital to operating expenses and the business profits.
In a narrower and more usual sense, it implies all the operating expenses
incidental to a particular service excluding interest and profit. The
traffic manager who is responsible for making special rates has in mind a
third meaning of the word cost which is still more restricted. The cost to
him means the actual additional expenses that the performance of a service
may involve. The great consideration for him is whether a specially low
rate which the trader demands is likely to cover the immediate operating
expense of moving that load, which otherwise would not be incurred, and
thus whether his company will be better oft with or without it. If it is
likely to cover it he agrees to perform the service for the trader.

1 A pertinent consideration arises out of this topic. Every commodity
has a maximum level or limit to its ability to bear, a rate beyond which,
no matter how great the distance, would render the business unprofitable
This limit is reached earlier in the case of cheap and bulky articles like
bricks than in that of more valuable articles like grains. In India the
limit of the former is approximately reached at 300 miles, of the latter at
600 miles. See Ripley, op. cit. p. 107.

76 INDIAN RAILWAYS

bricks and marble were charged the same amount weight
for weight ? Bricks are cheap and of common use ; marble
is expensive and a luxury. If the principle of the maximum
benefit to the many be observed, bricks ought to be
conveyed more cheaply than marble ; or, in other words,
like weights of commodities of different values should bear
dissimilar proportions of the total expenses of a railway.

It must, however, be explained that the modern view
which favours the cost principle does not deny the efficacy
of value in classification nor reject the principle of providing
for fixed costs according to what the traffic will bear. The
main point of difference between the two views is as to the
relative importance attached to the cost or value principle
in providing for the variable charges. The cost school,
while conceding that individual costs are difficult of calcu-
lation, contend that the cost standard may usefully be
invoked in judging of the lower limit of a rate l as well as a
non-competitive rate. Further, that in general the level
of rates ought to conform to the cost standard, or in other
words that the cost principle sets a limit above which the
general level of charges should not rise. Now this has been
broadly recognized in the American Transportation Act,
1920, which stipulates that the level of railway rates shall
be such as will enable the carriers under efficient and
economical management to earn a definite rate of return
upon their property.

Distance as the basis of rate making has also been
suggested as a solution to the problem. Like cost, distance
is certainly an important factor in rates, since in a rough
fashion it measures the expense of carriage. Cost increases
as distance but not proportionally. While the expenses of

1 Generally no railway would fix a rate below the cost of service for the
simple reabon that it would be unprofitable. But it may do so during a
rate war with a competing line, and then it is not difficult to see that ultim-
ately neither the railways nor the community can profit therefrom. Further,
it is noteworthy that according to Haines the railways in America " have
in the past lost millions of dollars through sheer ignorance of railway costs,
by making rates below the cost of the service as well as below what the
traffic could have borne." American Railway Management, pp. 24-7.
In India, as will be discussed hereafter, there is the additional danger of
the railways neglecting the cost of service in fixing rates as they are safe-
guarded from loss of dividends by the guarantee.

THE THEORY OF RAILWAY RATES 77

movement proper bear some relation to the distance, terminal
expenses do not. So that the costs of conveying a con-
signment do not vary directly with the distance but
commonly according to the square root of the distance. 1 If,
for instance, it costs a rupee to carry a certain weight ten
miles, to carry it forty miles, it does not cost four but only
two rupees. If distance cannot be the common yard-stick
of costs, it cannot be the common yard-stick of reasonable-
ness. Equal mileage rates, opposed as they are to the cost
principle, are thus neither sound nor practicable, 2 and it is
precisely for this reason that the rates are made tapering
or telescopic.

The distance principle is also the foundation of the system
of charging according to a few zones. Within each zone
there is a uniform rate and the more distant zone has a
higher rate. While theoretically it conforms to equity, in
practice many obstacles arise. The zone system was tried
in Hungary, but in face of stern facts they had to depart to
a great extent from the ideal principle of uniformity. One
obvious defect of the system is that it penalizes short distance
traffic as well as traffic at the nearer limit of the zone as
against that which is destined for the end of the zone.
The distance principle is also rightly and beneficially in-
voked in the formulation of tapering rates, bargmes or
staffeltarifen in all of which the charge decreases as the dis-
tance increases.

The modern distance school do not deny the weakness
of a rates system based purely on distance. They, however,
argue that the principle might be used with advantage in
the determination of the reasonableness of a rate towards
which the value principle offers no external guidance. The
principle, they say, is unduly ignored in the elastic systems
of England and America. This is undoubtedly too true,
especially when a state of competition exists between two
railways. The American Railways Act, 1910, which pro-
hibits a greater charge for a shorter haul is a testimony to
the realization there that distance has been unduly ignored

1 Ripley, Railroads : Rates and Regulations t p. 103.
a Vide Report of the Select Committee, 1882. Sir William M. Acworth
The Railways and the Traders, chap. ii.

78 INDIAN RAILWAYS

and that it must not be ignored as a factor in rate making. 1
In local discriminations, therefore, distance can be made a
prima facie basis of reasonableness.

Our inquiry then reveals that the value of service theory
is the most elusive, yet the most potent of all to develop
the country. The fixing of rates is par excellence an art,
not a science. Besides, its intrinsic importance and its
eminently workable character, the theory of charging what
the traffic will bear, has engaged much of our attention be-
cause of its favour with the railway men. They have
applauded its virtues, for it leaves in their hands a power
of discrimination which, even if unreasonably exercised,
is at best difficult of detection. 2 Its drawbacks were dis-
cussed not with a view to discrediting it, but to show its
defects which must be obviated in the interests of the
community. While the cost and distance principles are
untenable absolutely, their importance must be recognized,
and they ought to have due weight in the making of rates
and in judging of their reasonableness.

In the United States until lately, the one striking feature
of through rates was the utter disregard of cost and distance,
so that there arose a network of rates, 8 which the public
did not understand, and which was so manipulated as to
favour one area or individual to the detriment of the
other. Under the plausible cover of charging what the
traffic will bear many a rate was deflected. 4

1 For a scientifically constructed tariff, based on distance, vide Ripley,
Railroads : Rates and Regulation, Chap. X.

a There is no general attributes of a just and reasonable rate. In
judging of a particular rate all that can be done is to give due consideration
to various factors that should have weight in rate making.

8 See the searching article by Ripley exposing the mischief caused by
this policy entitled " Economic Wastes of Transportation " in his Railway
Problems.

4 The insufficiency of the theory of what the traffic will bear and the
sins that have been committed in its name have brought the cost basis
to the fore in the United States. Lorenz explains that on the important
eastern lines, traffic is so dense that the law of increasing returns has
practically ceased to work and that the constant element in their costs
is only 10 per cent. He contends, therefore, that the scope for the value
of service is restricted to this 10 per cent of the costs. He finally expresses
his opinion that in the eastern districts cost of service must be held as
the chief consideration, while in the south and west for some time at
least value of service must be held as the more important element in
rate fixing. " Cost and Value of Service in Railroad Rate Making "
Quarterly Journal of Economics, 1916.

THE THEORY OF RAILWAY RATES 79

In Europe the trend of opinion has been practically
in the other direction. Rates there are fixed by scales,
staffeltarifen, as they are termed in Germany, and bar$mes
in France, in which .distance as well as mathematical
averages plays a more important part. They seem to prefer
stability rather than flexibility of rates as a means of pro-
moting trade. 1

We may then conclude that of the two important princi-
ples, viz. : value and cost, none by itself can be made the
basis of reasonable rates. They are both equally important
and react upon each other. The cost principle based on
supply fixes the lower limit below which the service would
be unprofitable to the railways ; and the value based on
demand fixes the upper limit above which the service would
prove too costly to the trader. The actual rate must lie
within these two limits. Cost alone cannot be used as the
yard stick of a reasonable rate, nor can value be used as a
deciding factor. The problem then as to which of the two
principles should be practised in the formulation of reason-
able rates does not lend itself to a categorical generalization.
We have visualized the problem and placed in juxtaposition
the advantages and drawback of each theory. Every case
must be judged according to the peculiar circumstances
surrounding it, and whether the one or the other should
have predominance must be left to the decision of a body
of trained, impartial experts.

1 Referring to the problem of local discrimination, Clarke states, " It
is this knot which the German cuts with the knife of a statistical average,
and there are signs in America of an increasing tendency towards an
effective use of the same weapon." p. 17. Standards of Reasonableness in
Local Freight Discriminations. For further evidence of the reaction in
America towards rehabilitating the cost principle, see Haney, " Joint
Costs with Special Regard to Railways," Q.J.E., 1916 ; Sakolski,
" Economic phases of Railroad Rate Controversy," Yale Review, 1910 ;
M. H. Robinson, " Railway Freight Rates," Yale Review, 1909 ; Railway
Rates and Cost of Service, Owen Ely, 1924.

CHAPTER IV

THE DEVELOPMENT OF RATES AND REGULATION

I. The Period of Experimentation and Non-Interference

FROM the account of the peculiar relations existing be-
tween the Government of India and the railway companies
chronicled in the first chapter, the rationale of the control
of the State over the rate fixing powers of the Companies
will be easy of comprehension. Owing to the reluctance of
private capitalists to embark on the venture of Indian
Railways without any support from the State, the latter
had to guarantee them a certain percentage of interest
upon their capital, while in return it contracted with them
for stringent supervision and control over their under-
takings. This feature is noteworthy, for it made the State
responsible for the financial success of these concerns
and consequently more cautious as to the effects of the
exercise of its power over the general management of the
private railways and over their rate fixing power in par-
ticular. It has been specially concerned that with proper
facilities the companies earn a sufficient revenue to obviate
the necessity of its having to pay the guaranteed interest.

There are other considerations which make it incumbent
that the State should control the railways even though
there be no financial support by it. The railway by its very
nature is concerned in the performance of a public service
and is therefore vested with certain state powers. It is
again a conditional monopoly not regulated by the ordinary
laws of trade. The circumstances that the railway track is
just so many inches broad militated against its use as a free
highway from the very beginning. Competition thus has
not proved a regulator of its charges, and abuses have cropped
up everywhere having reference to exorbitant or unjustly
discriminative rates. Every public authority, therefore,
deems it its duty to watch over the interests of the people

80

THE DEVELOPMENT OF RATES 81

against the possible mal-practices of the railway companies.
Now, if in a country like England or the United States of
America, where genuine private enterprise has braved
financial risk and has created traffic or awaited its develop-
ment, a policy of minimum of State interference is justifiable,
in India under dissimilar circumstances the problem must
be viewed from a different angle altogether. It may finally
be added that the lack of inter-railway competition and a
vigilant public opinion in India factors which elsewhere
compel the railway companies to placate public opinion
has made the State control almost a moral obligation there.

At the very outset the powers of supervision and control
were conferred upon every chief Government Railway
Officer in each of the local administrations. Clause 8 in the
original contracts with the old guaranteed companies
provided that " the companies shall be entitled to such rates
and fares as are approved by the East India Company and
shall not increase them without its consent and that when
the net receipts of the lines have exceeded ten per cent upon
the outlay they shall be reduced so as not to exceed ten per
cent." The Government had, however, the right to control
the charges for traffic under all circumstances. The railway
companies were further bound to carry the Mails and the
Post Office servants free of charge, and military officers,
soldiers, and materials at special rates.

The fixing of rates was necessary from the outset, but in
the absence of any precedent or reliable data the task was
difficult in the extreme, and it took long before the amount
of traffic was measured and its nature appreciated. It was
perceived that while in England larger returns were pro-
cured from passengers than from goods, in India the
conditions were just the reverse, so that the mainstay of the
railway income would be the traffic in commodities.

In sending instructions to the Government of India, the
Court of Directors suggested the possibility that in India
more classes for passengers might be necessary than in
England. 1 The rates and fares they advised might be fixed

1 Despatch from the Court of Directors to the Government of India,
dated 7 May (No. n), 1845.

F

82 INDIAN RAILWAYS

for a year so that their effect could be gauged and modifica-
tions made in them at the end of that period. As regards
the profits of the Companies, they opined that any attempt
at fixing them " may have the effect of stifling enterprise,
energy and exertions which are best promoted by the hope
of large gains."

In actual practice, however, the hopes of the Government
of India were not realized. The case of the Madras Railway
may be taken as typical and throws interesting light on the
difficulties which existed in the way of an equitable adjust-
ment of rates and fares ; at the same time it brings into a
clear perspective the different and almost antagonistic views
held by the railway companies and the Government on the
principle indefinite in itself of charging what the traffic
will bear.

Owing to the scarcity of reliable information concerning
the probable traffic offering, the Government had in the
beginning asked the railway authorities to put forward their
suggestions in the matter of charges. The Agent and the
Manager of the Company thereupon proposed the following
scale of passenger fares :

ist Class. 2nd Class. yd Class.

As. Pies As. Pies. As. Pies.

10 10 06

Col. Pears, the Consulting Engineer to the Government of
Madras, however, proposed four classes with the following
scale :

ist Class. 2nd Class. $rd Class. qth Class.

As. Pies. As. Pies. As. Pies. As. Pies.

i 60 90 40 i

(slow train)

The scale sanctioned finally by the Government was the
same as that proposed by Col. Pears except for the provision
of the fourth class which the Government did not think
advisable to adopt then.

It was understood that this scale was fixed experimentally
for a year at the end of which the charges would be modified
in the light of previous experience.

1 Select ons from the Records of the Madras Government, Nos. XXXVII
and XLIII, 1856-7 and 1857, Madras,

THE DEVELOPMENT OF RATES 83

In 1856-7, previous to the revision of the scale, the
Government wished to know the results of the schedule of
charges then in force and invited the railway authorities to
communicate their experience as well as their suggestions
for modification. In forwarding these the Consulting
Engineer pointed out the direction in which modifications
may be desirable.

There seems to be no doubt that in the first year of
railway operation the results had failed to approach the
expectations formed. While both Mr. Fletcher, the Traffic
Manager of the Company, and Col. Pears, the Consulting
Engineer to the Government, agreed as to this, they differed
as to the causes which were responsible for this disappoint-
ment. Mr. Fletcher argued that the failure was due to the
unsatisfactory arrangement of the passenger trains, and what
was still more important, the great difference in the fares
for the third and the upper two classes, the second class
fare being more than double that for the third, and the first
double that for the second, and more than four times that
charged for the third. By raising the third class fare he
therefore wanted the people travelling by this class to
patronise the two upper classes.

Col. Pears viewed the situation differently and disagreed
entirely with these arguments. He rightly contended that
the people of India were poor and the reason why there
was not sufficient passenger traffic on the Madras Railway
was that the third-class fare was too high. On the East
Indian and the Great Indian Peninsula Railways the third
class fare was three pies, that is lower than on the Madras
Railway. He calculated that even the three pie fare " repre-
sented at least three halfpence, half as much again as the
lower classes of passengers pay in England." He was at
pains to show that in the preceding ten months the daily
average of passengers was four for the first class, eighteen
for the second class and 436 for the third class. To him
this was a significant characteristic of the travelling public
in the country. When the third class traffic so overwhelm-
ingly predominated over that of the other two, it was to
him taking too narrow a view of a subject affecting millions

84 INDIAN RAILWAYS

to talk of developing the two upper classes. He was not
commercially averse to developing th*se, but he objected to
encompassing that aim by raising the third-class fare which
would inevitably result in driving away thousands off the
railway. As it was, the actual results he thought were
notorious, for none but the wealthier classes travelled by
rail, and twenty-six miles from Madras, an ordinary road
running parallel to the rail, " had presented to the railway
officials the unsatisfactory spectacle of thousands of people,
some in bullock carriages, others on foot, passing to or from
Madras/'

It was the first instance, he thought, where a railway
taking the place of the old modes of transport, had begun
by charging higher than they did. He compared the fare
of four pies a mile, with that in England of one penny, and
taking the labouring man's pay there at eighteen pence a
day, he found that he could travel eighteen miles for a day's
pay by railway. In India at two annas a day, and six pier
a mile, he could do a distance of four miles on the railway.
He had, however, a family of six, with the result that he
could not appreciate the privilege of riding on the railway,
but put them into a bullock bandy. 1 whereby he could do
twice the distance for the same money as on the railway.
The merchants of Vellore in their petition to the Govern-
ment bore out the contention of Col. Pears. They stated
it as their unanimous opinion that of the people who travel,
not more than one-eighth travel by rail in consequence of the
high rate of charge, and that if this were lowered to suit
their condition many more would use the railway. 2

The freight rates then in force were J pie per maund per
mile for the first class, \ pie for the second, and f pie for
the third, with an additional terminal charge which varied
according to the weight and measurement of the article.
As with fares so with the freight rates. Their assumptions
were different and their conclusions varied. Mr. Fletcher
went on the assumption that a large trade was already

1 A cart. The farmers, the banjaras and most of the commercial
men kept these bandies.

a Appendix C to the correspondence.

THE DEVELOPMENT OF RATES 85

existing in the country which the railway had merely to
carry. On the analogy with England he therefore desired
that the rates should be adquately high to permit of immedi-
ate profits. The country, he said, was extensive, the rail-
ways had joined the three capitals together, while in Madras
a large trade in merchandise was already existing.

Col. Pears condemned the basing of rates on the analogy
with England a country which " is characterized by industry,
wealth, intelligence and energy of the highest order," with
India, just emerging out of disorder and depression. He
held that with railways not many years old, India was more
like a field which required much ploughing before a profitable
harvest could be gathered. He considered it rash to expect
high profits from the very beginning ; the railways must
wait until they had created a demand. The main object
of the Government in introducing railways was to provide
better and cheaper transit for the country. If the Govern-
ment once gave up its control over the railways before this
great end was successful, " the public credit and money
would be misappropriated."

He further argued that the main reason why the traffic
offering on the railway was disappointing was that its
charges were not sufficiently low to attract traffic, which,
therefore, continued to go by the old ways. He cited
figures to prove that in one month the average daily number
of loaded bandies, passing Woochery, on the Madras side
of Arcot, was 1,596, or about 800 tons, while the average
daily tonnage by rail from Madras to Arcot was 23, and
from Arcot to Madras 32, including railway material. 1
The attractive force of the railway even for traffic passing
by its terminus was thus insignificant ; while it could not
create any great lateral traffic or exercise any influence
over a wide extent of territory. The bandies had lowered
their rates in face of the railway competition. Good carts,
carrying 15 maunds could be got to work between Vellore
and Madras for Rs.4 or even Rs.3|, returning with a load
of salt for Rs.2 or Rs. 2j. At Rs.6 15 maunds were carried
168 miles, averaging J pie per maund per mile, or less than

1 Appendix C to the correspondence.

86 INDIAN RAILWAYS

one anna and 2 pies per ton per mile, including collection
and delivery. 1 }

The Government of Madras showed themselves in full
accord with the views expressed by Col. Pears and were of
opinion that he had "successfully demonstrated the fallacy
of the arguments " on which the officers of the Madras
Railway had based their proposals for a high scale of charges
for the conveyance of passengers and goods. The Court
of Directors also concurred with this view and stated that
" the railway should be made available, to the utmost
possible extent, for the mass of the people," although the
profitable working of the railway should not be lost sight of.

In his Report for 1860-1, the Government Director of
Railways remarked " a revision of the rates has since been
made. . . , The former high rates and other causes
prevented traffic from coming to the line in the Deccan,
for notwithstanding the facilities of transit offered by
the rail, the amount of goods on the old high road had not
diminished."

From 1849-50 to 1858-9, the Government paid 1,528,045
as guaranteed interest to the companies whose net profits
during the same period amounted to 325,405. The rail-
ways were thus working at a loss and yet they did not make
much effort to attract traffic and thereby make their lines
profitable. The Government Director reporting in 1860-1
observed that their two great objects should be to develop
the traffic and to reduce the working expenses. As regards
the first, he said, it was proved " that the people of India
are similar to the people of every European country in their
disposition to travel." The numbers using the rail were in
proportion to the inducements offered. For instance, when

1 This policy of charging rates which the traffic could not bear and which
therefore continued to go by the old ways was general at the time.
Col. Cotton, a great advocate of waterways substantiated the arguments
of Col. Pears. On one of the four main approaches to Madras, 3,000
men travelled per day. These men were not attracted to the Railway
because of its prohibitive charges. In 1857, on the G.I. P. Railway
which had an opened mileage of 89 miles the average tonnage of goods
was 60, which was " insignificant considering the trade of Bombay or
the (expectations of the Government." Yet the rates charged were only
a trifle less than by the old conveyances. In Bengal the Rajahmundry
Canal carried at cheaper rates than the Railway.

THE DEVELOPMENT OF RATES 87

a fourth class with reduced fares was established on
the G.I.P. Railway, with about 350 miles open, the
number ofpassengers increased nearly half-a-million in
six months.'!

His apprehensions of the policy of railway charges was
reflected in his Report of 1863-4. He wrote, " It will be
observed from some of the traffic returns, that the receipts
have increased, although the traffic has diminished. If
the traffic has not been reduced too much, the object
has been attained. But it is possible that the rates may
have been raised a little too high, and that more traffic
might have been taken and at a less profit per passenger
and per ton goods and yet so as to produce greater
aggregate profits." l

He adopted a more definite tone in 1866, when he
pointedly drew the attention of the Secretary of State to the
tendency among the railway companies to increase their
charges without considering what the traffic will bear. The
Government viewed this with concern, for they had recog-
nized by previous experience that high charges drove away
traffic from the rails, with the result that the earnings of
the railways fell off and their guaranteed profits had to be
made up from the national treasury. While it was un-
doubtedly in the interest of both the parties to make the
railways profitable, the Government desired this to be
achieved by spreading the benefits of railway transport to
the greatest number ; the companies on the other hand
aimed at the result with the minimum of carriage or effort.
In other words, the companies strove to carry a small
volume of high class traffic at high rates, while the Govern-
ment, although perfectly willing to permit the companies to
make reasonable profits, were anxious that they should be
made from the carriage of the maximum of low-charged

1 The view of the railway companies that in their undeveloped territory
the customers should be made to pay their full profits from the commence-
ment was not sound. The railways were constructed for supplying the
needs of the future ; and it was in anticipation of this that their profits
were guaranteed by the state. "Apropos" of this, Haines writes "It
is almost axiomatic that rates cannot be made so as to give high earnings
to a poorly placed, indifferently operated, or isolated road without making
the rates absolutely extortionate." Problems in Railway Regulation,
p. 450.

88 INDIAN RAILWAYS

units. 1 Dwelling upon this theme the Government Director
wrote : " Considering the question in the abstract, the first
point to be ascertained before fixing charges of this kind,
is the cost of conveyance, and then, the charge which, in
addition to what is required to cover the cost, "will produce
the aggregate return ; for it should be borne in mind, that
it is not the high profit upon the unit, but the small profits
upon the large numbers or quantity, which should be
sought for." 2

The failure to appreciate this principle at an early period
was a common defect of the railways all over the world,
and yet it is a fundamental of railway economics. The
railway industry normally reacts to the law of increasing
returns until the point of congestion of traffic is reached.
Once a large capital is sunk in the undertaking the income
from it increases out of proportion to the expenditure
incurred. The greater the volume of traffic the less the cost
of producing a unit and the profit necessary to produce
the same returns per unit. 8 It is consequently the great aim
of the traffic manager to carry as fully loaded a train as
possible so that the fullest utilization of the plant may
follow and profits may concurrently increase.

2. The Period of Divergent Views of the Secretary of State
and the Government of India

The policy of laissez-faire which the Government had
hitherto embraced was now discarded and it was decided to
define more clearly the powers of the companies to impose
rates and fares. This policy was first adumbrated in the
Report of the Government Director of Railways for 1861-2.
" A very judicious arrangement " he wrote " is proposed for
the settlement of the matter, viz., that the Government
instead of fixing the actual fares to be charged, approve of

1 Mr. Neville Priestley in his Report in 1903, observed that the results
on the American railways showed that they made their income by small
profits per unit and large volume, while Indian railways made their income
by large profits per unit and smaller volume, p. 152.

2 Report on the Railways in India, 1865-6.

8 Supra, Chap. III. This principle is well illustrated by the expansion
of business which followed the establishment of Hill's penny postage ir
England and the parcel post system in the United States.

THE DEVELOPMENT OF RATES 89

scale of maximum rates, leaving it to the company's
Seers, in communication with the Consulting Engineer of the
overnment, to impose such rates from time to time, within
le prescribed limit, as may be found conducive to the
iterests of the undertaking." While protecting the public
om the ill-directed actions of a monopoly, it was intended
> fix a maximum scale of rates within which the railway
tanagers would be able to adjust their charges.

The principle of fixing maximum rates was first intro-
uced in 1865 on the Bombay lines. Till then Government
ad assumed the policy of non-interference with the rates
tiposed by the companies. But the tendency of the latter
wards high charges had impressed upon them the need of
mtrol by fixing maximum rates beyond which charges
mid not be levied. They had determined that the burder.
E the guarantee should not be allowed to press too heavily
pon the people, and that therefore a firm attitude must be
iken by them vis-a-vis the companies as a corrective to
leir policy. It is in this light that the scrupulous solicitude
E the Government for the lowest class of passengers and
Dods, which will be noticed hereafter, should be viewed.

The maximum rates on four of the important lines were
5 follows :

Rates per ton per mile. Pies.

Classes of Goods. E.I. G.I. P. B.B. & C.I. Madras.

>t .... 9 8 8 14

id . . . . 13! 10 10 18

d 18 16 16 24

:h .... 27 20 20 36

:h .... 54 30 30 54

The policy initiated on the Bombay lines was followed
y other provincial Governments, although no attempt was
tade to establish uniform maxima. A check was thus
at upon the power of the companies to charge, which
as none too soon, for, as Mr. Bell observes, the railway
>mpanies had already begun to experience the pressure of
'affic, and to recognize that in the absence of competition
ley had the game in their own hands. 1

1 H. Bell, Railway Policy in India, p. 207.

go INDIAN RAILWAYS

Subsequently, the Secretary of State issued certain in-
structions to the Government of India defining the latter's
powers over the railway rates. The maxima rates were to
be fixed by the local Governments and in doing so, sufficient
scope was to be left for the companies to exercise their
power of discretion. The Central Government were not to
interfere with the railway rates, but were restricted to deter-
mining the general railway policy. 1 The Government of
India did not see eye to eye with the limitation of their
powers. While they did not doubt that the local Govern-
ments would safeguard the interests of their people, they
objected to the curtailment of their own powers so long as
they were responsible for financing the railways. They
argued that they ought to have the right to protect the
interests of the lower strata of goods and passengers at
least. Further, they expressed the opinion that the Secretary
of State in his despatch, had made no recognition " of any
duty on the part of the Government to protect the interests
of the people." While they fully admitted that their
control should not be so exercised as to compel the railway
company to carry men or goods without profit, they sug-
gested that in any " readjustment of fares of the lower
classes, the accommodation of the public should be con-
sidered, so far as it was not incompatible with the interest
of the company, or the means at their disposal for providing
such accommodation." 2 They further differed from the
views of the Secretary of State in regard to the motive of
the companies in fixing fares. " It does not appear to us,"
they stated, "to be the interest of the railway companies
to carry the maximum of passengers with the maximum
of profit, but on the contrary to get the maximum of profit
with the minimum of passengers ; thus it would be prefer-
able to them to carry two million passengers in a half year
at three pies instead of three million passengers at two pies."
They went on to show that this was not mere conjecture,
but that the case had actually happened in Madras. " The
Agent of the Great Southern Railway of India raised his

1 Circular of the Government of India, No. 10 R. of 1867.

2 Despatch No. 26, dated 8 February, 1867.

THE DEVELOPMENT OF RATES 91

lowest fare from four to five pies per mile, and thereby shut
off nearly 30,000 passengers in three months and reduced
the earnings of the line by about Rs. 1,500." l

The Secretary of State was not disposed to view the
situation eyei to eye with the Government of India, nor
was he convinced of the antagonism of interests between
the latter and the railway companies. The Local Govern-
ments were therefore charged with the settlement of the
maxima, in which the Central Government were not
to interfere. 2 The existing fares on all opened lines were
fixed as the maxima, while on all lines which were to be
opened thereafter, a fare of two pies per mile was decided
upon. The Central Government were, however, allowed
the power of fixing the charges for the lowest class of pas-
sengers and for food-grains and coal. The existing rates
for food-grains and coal were fixed as the maxima, but on
all lines to be opened thereafter, a rate of one quarter pie per
maund per mile was fixed as the maximum. The resolution
explained that it was not intended that the fares and rates
which were laid down were to be blindly adhered to under
all circumstances, but that an alteration might be made
with the sanction of the Government of India. The desider-
atum to be aimed at was a maximum of profit, not from a
minimum but from a maximum of traffic.

Subsequently to the fixing of the maxima fares, the
Secretary of State advised the Government of India to
have the scale of passenger fares revised in Madras so
as to afford greater scope to the companies to vary their
charges. The Government of India as well as the Govern-
ment of Madras were both averse to any such step being
taken in view of the actual results on the lines. They had,
however, to submit to orders, and thereupon the first class

1 Despatch No. 76 P.W.D., dated 25 August, 1868. Mr. Thomas
Robertson in his Report in 1903 lays the blame upon the guarantee system
for this state of affairs. " Railways," he says, " which show no prospect
of earning surplus profits had no inducement to economy, their dividends
being assured to them whatever their income might be. Railways which
did a larger business in one half-year and not in the other, were thereby
encouraged to confine as much as possible of their Revenue expenditure
to the bad half year, since the lower expenditure in the good half year
did not affect the minimum return guaranteed by the Government." . 17.

3 Resolution of the Government of India P.W.D. No. 1174 80 R.

92 INDIAN RAILWAYS

fare in Madras was raised from 18 to 20 pies, the second-
class fare from 5 to 6 pies and the third class fare from
3 to 4 pies a mile. In altering these maxima, Lord Mayo
realized the important social and political considerations
involved in the matter, and recorded his regret that the
high fares had been revived. He argued that it was " ' blind
policy * to neglect the interests of the masses, it was not
by raising, but by lowering the cost of transport that we
must hope to develop the enormous revenue that we are
now only touching from this source." 1

Similarly in the case of the Oudh and Rohilkhand Railway
the considered views of the Government of India were
ignored by the Secretary of State. In September, 1869, the
latter called the attention of the former to what he thought
was the low maximum fare for third class on that line
which left its authorities no discretion in fixing the actual
charge. The Government of India, with their intimate
touch with the administration of the railways and their
knowledge of the economic condition of the travelling
public, were of opinion that the fare even then was not
low enough to attract the greatest possible number, and
deemed it advisable at least to leave it at the existing level.
The fare was, however, raised from two to two and a half
pies, the Government of India remarking that it would
result in depriving the masses of the benefit of quick and
safe carriage. 2

1 Evidence of Major Conway-Gordon before the Select Committee,
1884, para. 4317. From the evidence before the same Committee, paras.
442-9, it appears that with a length of 860 miles the Madras railways
with their high cost of construction and their indiscreet policy of charging
were paying only 2 per cent and during their operation of 25 years had
lost ^5,900,000, a burden which the Indian tax-payer had to shoulder.
The heavy losses on the railways in the nineteenth century must account
for the indequate provision of railway mileage in India.

3 It may be inferred that India is best suited by her staple commodities,
the economic and social condition of the people, as well as by her
geographical features for railways with petite vitesse t scanty comforts and
low charges. In this respect India affords a striking contrast to England,
where the totally different economic and social conditions have been
responsible for speedy carriage of goods and great comfort to the passengers.
An aspect which has been overlooked even by experts is the consideration
of the relative value of money and distances in India. There, as Sir
Arthur Cotton said (Journal of the East India Association, 14 December,
1869), a ton of cotton valued at ^60 conveyed 500 miles at 4d. a mile,
if charged with a sum of & equals 13 per cent, while a ton of manu-

THE DEVELOPMENT OF RATES 93

The maxima which were already fixed high in 1868,
owing partly to lack of experience and partly because of an
absence of effort to study traffic conditions were thus raised
still higher in a few cases which resulted in a loss of traffic
and a high operating expenditure. 1

The year 1869 saw many important events in the history
of Indian railways. The policy of State initiative in railway
construction and management with a view to economy and
simplification of rates and fares was instituted. The
opening of the Suez Canal by De Lesseps, brought India in
a closer relationship to the European markets and gave a
great stimulus to her overseas trade. During the year
261 miles of railway were added to the 4,020 already
existing. In the same year modified terms were incor-
porated in the contracts with the old guaranteed companies,
whereby a more definite power of control was vested in the
Government to be used over the companies ; and it was
arranged that any profits of the railways over five per cent
were to be equally divided between them and the Govern-
ment. On the other hand in return the Government
arranged to keep no account of the guaranteed interest
against the companies, and to cancel their past debt.

The E.I. and the G.I. P. Railways were joined at Jubbul-
pore in the same year, bringing together Calcutta, Bombay,
Delhi and Lahore. The journey between London and
Calcutta, the then capital of India, was curtailed by three
or four days, and it occupied no more time than it took
twenty years previously to traverse the country from one
end to the other.

factured goods worth 200 carried in England for 100 miles at 2d. a mile
comes to less than J per cent. The inference is that what the traffic will
bear is a much smaller sum in India than in England. To state, then,
as it is often done, that the charges in India are the lowest in the world,
while neglecting the peculiar conditions of India, is merely to indulge in
a hyperbole.

1 Sir George Campbell asked " In almost every case the rates under
that provision were rashly fixed, which rates are now enormously high.
I think you told us far beyond what the companies in their own interest
would ever dare to work up to ? " " Yes," was the rejoinder of Major
Conway-Gordon " they are very much higher than what the companies
actually charge. Para. 4412 Report of the Select Committee on East
Indian Railways, 1884.

94 INDIAN RAILWAYS

It was dilated upon previously, that the guarantee
system was responsible among other evils for encouraging
expenditure not warranted by the existing traffic. And
since for some time at least the railway earnings were not
able to meet even the guaranteed interest, little incentive
existed for them to economise in operation, or to adjust
rates so as to attract a maximum of traffic. In fact, a
Director of the G.I. P. Railway stated distinctly that the
" object of the Company was to secure the best dividends
from a small traffic at high rates." l So also it is clear that
in a case like that of the Madras line, where after a great
number of years of working, its management had arrived at
the conclusion that it was hopeless to earn more than the
guaranteed interest, the inducement to economy must have
been very small. This tendency, general at the time, was
commented upon by the Government Director. " The high
amount of working and maintenance expenses on certain
lines seem to imply either an absence of strict economy or
imperfect construction in the first instance." 2

Further proofs of this tendency were forthcoming. After
1866, when there was a great depression in traffic receipts of
the E.I. Railway, Mr. Rendel the Company's Consulting
Engineer was sent out to India to investigate the problem.
On examination, he found that the great growth in expen-
diture during the two previous years had been in advance
of the natural development of the traffic ; and stated that
the mileage of the rolling stock was out of proportion to the
work done. 3 He therefore recommended the indefinite
postponement of some works ; and the adoption of mixed
trains, with a lowering of the third class passenger fare
from three to two-and-a-half pies.

Five years later the same authority reviewed in detail
the operation of Indian railways. His conclusion was that
the high operating expenses upon the Indian railways were
due to the unsystematic loading of trains and the consequent
wasteful mileage run. He drew pointed attention, inter alia,
to the relation between the cost of carriage and the charges

1 Evidence before the Select Committee, 1884, para. 4503.

* Report on Railways in India . 1870-1.

* G. Huddleston, History of the East Indian Railway, p. 58.

THE DEVELOPMENT OF RATES 95

levied. The failure of traffic to rise up to expectations was,
to his mind, due to the heavy rates charged. He rightly
explained that the rate per mile might not seem large, but
the low value of the commodities coupled with the long
distance they were conveyed laid an intolerable burden upon
their prime cost. He was confident that low rates would
make traffic in India and that with judicious management
the cost of transport could be reduced to an average of about
one-third of a penny per ton per mile or one-half the then
existing average of all lines. 1

With the opening of the Chord line in 1871, the East
Indian completed its work of construction. Its mileage was
now 1,280 of which 400 was double and the rest single line.
In the first half of 1871 it was, however, found that its traffic
was again seriously declining ; the tonnage aggregating
580,378 as against 700,804 in the corresponding half of
1870. A loss upon a railway was a loss to the state. The
finances of the Government of India were not in too flourishing
a condition, and it is therefore not surprising that they
should have thought fit to investigate the causes of this
decrease.

Two Committees were appointed, one for Bengal and the
other for the North- Western Provinces. 2 Their conclusions
were practically identical and afford us some valuable
material for studying the methods and the policy of the
railway and the character and strength of competition by
boats.

It will be recalled that in 1870, the traffic in grains was
exceptionally large in consequence of a famine in the North-
Western Provinces, while in 1871, besides the normal falling
off in the grain traffic, the export trade in oil-seeds had
diminished. The merchants on the East Indian, therefore
preferred the cheaper though more dilatory conveyance

1 Appendix to the Report on Indian Railways, 1871-2.

a The local enquiry made into the falling off of the grain and seed traffic
in the Bengal Division of the E.I. Railway during the first half of 1871.
The report of the Committee appointed by the Government, North- Western
Provinces, to inquire into the causes of decrease of the traffic on the
E.I. Railway within the limits of the Provinces during the current year.

The East Indian passed through these two provinces and hence the
need of appointing two Committees.

96 INDIAN RAILWAYS

by the river. The inconvenience and impediments
experienced by the merchants on the railway further
aggravated the situation. There was an absence of sym-
pathetic contact between the carriers and their customers.
The latter complained and the Commissioners testified to its
existence, that there was a loss from pilferage and rough
usage of bags. There were inexcusable delays in supplying
wagons, and not infrequently a gratuity was expected by
the railway staff. There was an insufficiency of goods-shed
accommodation at some stations. The traders experienced
difficulty in obtaining compensation for petty losses and
redress of reasonable complaints. The form of published
rates was unnecessarily confusing and complicated. 1

The operation of these causes should have made the
Company cautious as to the charges they levied. Their
proper policy should have been to remedy these evils and
to encourage the declining trade by making concessions
when feasible, and by offering other attractions. Instead
of that, as the Commissioners remarked, they " administered
the death-blow by raising the rates enormously." With
the opening of the Chord line, a lowering of rates was ex-
pected, since it had shortened the through distance from
Calcutta to Delhi by sixty-four miles. This did not happen.
On the other hand, the boats reduced their rates by twenty-
five per cent.

It is noteworthy that the Commissioners found some
further advantages which attended carriage by boats.
With low rates the risk of loss was slight, insurance could
readily be effected at four per cent, while the immunity
from pilferage and wastage was far greater than on the
railway. Cargo by boat was taken right down to Calcutta
and could be kept on it till disposed of. The railway carried
the consignment only as far as Howrah, and thus there
was the additional expense of crossing the Hooghly and of
storage. There was the further advantage that the con-
signment on the boat could be sold at any of the intermediate
towns where a halt was made.

Although the moral of the magnetism inherent in low

1 Vide also J. Hector, Land and Railways in India, 1875.

THE DEVELOPMENT OF RATES 97

larges and better facilities especially for cheap and bulky
affic, was lost upon the railway authorities, a vigorous
fort was made to reduce the cost, with the result that the
perating ratio of the line came down to 38.66 per cent
i the first half of 1872, and to 37 per cent in 1873.

Nor was it the East Indian alone which ignored the latent
Dssibility which hid behind the transportation of the
aples of the country at sufficiently low rates to enable
lem to move and find a market. The other railways were
jually unenlightened as to the effect of a large amount of
affic on their costs. They were deeply enmeshed in the
)ils of the " cost of conveyance " heresy. They ignored
le fact that India was, unlike England, a poor country,
id whose traffic consisted mainly of raw materials which
:>uld not bear any but a limited cost of transport. Now

the price for transporting these was increased ; it would
tevitably follow that the demand for them would be cur-
dled and the amount of traffic would fall off. It is not to
e wondered then that the Government Director often
Dmplained that " railways have not conferred upon the
Duntry the full benefits, nor yielded the profits which
ley might have done." l

It is not intended to convey that the railway companies
r ere absolute advocates of high rates and fares. It was
ially the practically unconditional guarantee of a high
ite of interest which had stifled in them all initiative to
lake experiments in drawing traffic. They seemed to be
bsessed with two ideas which were the foundation of their
olicy ; the lines must be made to pay from the very
Dmmencement, and that the cost of conveyance was a
xed and invariable figure. Competition, that great spur
> effort and vigilance, was again absent. Consequently,
ley were instilled with an antipathy to lower charges
p hich would mean more work, more rolling stock, and a
roportionately less profit per unit. Ordinarily, competition
srves a twofold purpose : it fixes the limit to competition
ccording to the cost to the marginal producer, and it
r eeds out the unfit from the field. The effect of the guaran-

1 Report on the Administration of Railways in India, 1875-6.

G

98 INDIAN RAILWAYS

tee, however, was to prevent the inefficient from going to
the wall, and to encourage an artificial sense of safety under
cover of which ill-managed railways existed.

There is another factor which must be mentioned in
connexion with the policy of charging rates pursued by the
companies, namely, the influence of the British railway
practice. The officers who managed the Indian railways were
trained on British railways, and were consequently incul-
cated with British methods and ideals. In India, in spite
of the dissimilar features of the country and the needs of
the people, they followed the British practice. The Boards
of Directors of the railway companies as well as the Secretary
of State, who could have acted as a corrective to this,
suffered from the same drawback. The result was clearly
reflected in the early history of Indian railways ; and this
malapropism not unnaturally delayed an adjustment of
charges in India in accordance with the economic needs of
the country.

Wherever lower charges were tried by the railways, either
on their own or on the initiative of the State, the results
were, however, invariably satisfactory both from the oper-
ating, and the profit-earning points of view. 1 In 1868, for
instance, a famine occurred in Bengal and the Government
thought it incumbent to order a lowering of rates for grains
on the East Indian to pie per maund per mile. They
were cautious not to fix the rate below what they con-
sidered the actual cost of transport. In order to recoup
the Company for any loss that it might incur, it was stipu-
lated that the difference between the normal rate and the
reduced rate would be made good by the Government. 2
The result was such an expansion of traffic that the company
reaped a good harvest of profit. So also, during the Bengal
famine of 1873-4, the quantity of food-grains which
moved as a consequence of the lower rates was remarkable.
750,000 tons of grains were delivered by the railway between
Rajmahal and Arrah, so that " a dire calamity had been
prevented from attaining the proportions of a fearful

1 Vide Administration Report for Railways, 1876-7.
9 Gazette of India, u January, 1869.

THE DEVELOPMENT OF RATES 99

catastrophe." l In 1876, the famine again was responsible
for enlarged traffic on many lines, and it was realized by
them that with a greater tonnage, rates could safely be
lowered, for -by careful and observant management full
train loads could be secured and wastage avoided. And it
was thus that the innate viciousness of the principle of
charging the highest possible rate, although it resulted in a
limited amount of traffic, was gradually perceived.

(3) The Period of Competition and Rate Adjustments

In the period which we just examined, the two outstand-
ing features were the excessive interference of the Secretary
of State in the railway affairs, with the result that the
Government of India were handicapped in exercising their
authoritative control over the policy of the railways, both
as potential owners of the lines, and as the guardian of
public interests. The second feature was that under cover
of the guarantee and the absence of inter-railway com-
petition, the railways levied charges which were repellent
to traffic. Again, the control of the Government was not
sufficient, so that while they disagreed with the policy of
the companies, all that they could actually do to remedy
the situation was to urge them to experiment in the direction
of lowering their charges.

Now, however, they left their inertia behind and made a
studied and determined move to improve the unsatisfactory
situation. In 1880, they issued a resolution in which the
adoption of the maximum fare of two-and-a-half pies was
advocated. In 1882, fully convinced of the high third-class
passenger fare on the East Indian, they ordered its reduction
from three to two-and-a-half pies per mile. They were
conscious that the operating expenses on the line were
exceptionally low, and secondly they had observed that the
Great Southern of India Railway had reduced its third
class fare to two-thirds of that on the East Indian with
success. 2 The Agent, the Traffic Manager and the Chief

1 G. Huddleston, History of the East Indian Railway, p. 67.

a The Administration Report for 1878-9, stated that the lowest fare
on the Punjab Northern State line was 1-8 pies ; on the Oudh and
Rohilkhand, and on the Madras and South Indian Railways it was 2 pies
per mile.

TOO INDIAN RAILWAYS

Auditor of the East Indian all strenuously opposed this
proposal as uncalled for, and as against the the interests of
the shareholders. The Board of Directors of the Railway
were also against the step, and contended that since the
traffic was steadily increasing, and there was a shortage of
rolling stock and of traffic-handling facilities, a reduction
in the fare would have untoward results. But since its
purchase by the State in 1879, Government had a more
plenary control over the railway, 1 so that the Company
had to comply with orders and the reduced fare came into
operation in 1882. The following figures testify to the
wisdom of the action of the Government :

Numbers Receipts in rupees

First half of 1880 . . 3,802,743 45,51,966

Second half of 1880 . . 3,497,621 43,40,205

First half of 1881 . . 3,905,665 45,86,459

Second half of 1881 . . 3,672,028 43,50,680

First half of 1882 . . 4,645,468 55,76,367

Second half of 1882 . . 4,407,108 43,61,734

The chronicler of the railway remarks, " the reduction
was evidently a very sore point, but the results proved from
the outset that it was fully justified. Since those days, the
average distance travelled by each passenger has become
still shorter, but this is due, not to reduction in rates, but
to the greater number of people who have gradually been
induced to take the rail for short journeys, instead of walking
the distance, and also to the opening of the alternative
routes." 2

The year 1880 stands marked out in the history of Indian

1 In the renewed contract with the company, the following clause was
inserted, " the Secretary of State may require the charges for the convey-
ance of any mineral or mineral substance, or for any article of agricultural
produce, over distances of not less than 300 miles, to any rate not below
one-sixth of a pie per maund per mile for full wagon loads, and may also
require the fare of passengers, conveyed in closed carriages with seats, to
be reduced to any rate not below two pies per mile."

2 G. Huddleston. History of the East Indian Railway, p. 116. Vide
also Administration Report for Indian Railways, 1883-4. When the
G.I.P. Railway was purchased by the State in 1900, the State followed
a similar policy and had its rates, which were prohibitive, lowered to
the great development of local traffic. Its higher maxima rates were
also brought down on a level with those existing on the State railways,
and its classification brought more into conformity with that on the .1.
Railway.

THE DEVELOPMENT OF RATES 101

railways, for it saw the rapid and successful development
of state lines ; it witnessed the re-introduction of private
enterprise in railway construction ; and it dated the birth
of the Railway Conference.

From the point of view of the development of rates and
competition between the railways, the opening of the
Rajputana Malwa State Railway was epoch-making. Even
after the opening of the Suez Canal and the junction of the
East Indian and the Great Indian Peninsula at Jubbulpore,
inter-railway competition was negligible. It was the policy
of the Government to avoid the construction of competitive
lines as far as possible. But the commencement of the
Rajputana Malwa and its junction with the Bombay Baroda
and Central India Railway at Ahmedabad, brought about a
keen competition between the lines leading to the sea-ports,
awakened among them a desire to study what the traffic
will bear, and ultimately made them conscious that cost was
not a fixed quantity but varied with the volume of tonnage
and the distance it was carried. Experiments with lower
charges in course of time taught them the same lesson which
was learned much earlier in America that rates which prima
facie would mean financial embarrassment could be made
profitable by developing large territories and increasing the
volume of traffic. The desideratum of Government to have
rates which the peculiar Indian traffic would bear, was to
some extent fulfilled. Bombay was drawn nearer the grain-
producing districts of the north and it was able to challenge
Calcutta as the great outlet for the export trade of the
country.

It is a matter of common frequency in the early period
of railway expansion that the only way by which a new
line can induce the traffic to move by it is by offering lower
rates than those on the old line. The latter considers this
act hostile, and in its turn lowers its rates to meet the new
competition. A rate war thus ensues, and might degenerate
into cut-throat competition until some agreement is reached
between them or, unless the State interferes as in India, by
the fixation of minima rates.

The Rajputana Malwa State Railway was built on the

102 INDIAN RAILWAYS

metre gauge and was opened for traffic on i January, 1881.
The distance between Bombay and Delhi by the Allahabad-
Jubbulpore broad gauge route was 1,234 miles ; the distance
via the Rajputana Malwa was 889 miles or 345 miles less.
The distance between Delhi and Calcutta was 954 miles.
The B.B. and the R.M. then reduced their rate for grain
from Delhi to Bombay from annas 13 to annas n per maund.
The rate between Delhi and Calcutta by the E.I. being
13 annas, the Calcutta Chamber of Commerce petitioned the
Government of India against the lower rates to Bombay
which naturally had caused a diversion in the direction of
the traffic from the north-west, and prayed that the rate
balance be restored. That the situation was fraught with
misgivings for Calcutta admits of no doubt, and the figures
in the Administration Report for 1881-2, show that the
displacement of traffic in favour of Bombay, especially in
cotton, seeds and wheat, was considerable.

The Government of India were doubly interested in the
question, for the R.M. was managed by them, and the E.I.
had become their property in 1879 ; while both the B.B.
and C.I. and the G.I. P. were guaranteed and at the time
had no inducement to fix their rates at a remunerative level.
In their despatch to the Government of Bombay, they
explained that it was immaterial how the surplus of the
country found its outlet. They held that the railways were
constructed to afford carriage " at the lowest rates con-
sistent with yielding a fair and reasonable return on the
capital laid out." l But the interests of Bombay were
against this principle, and it was argued by it that rates
based on mileage would be fair to both the parties, and
would have the additional advantage of simplicity. The
Government of India, however, impressed by the lower costs
of working on the East Indian, concluded that equality or
uniformity of rates under the circumstances would be unduly
handicapping a line which, owing to its peculiar position,
cost less to operate.

But the Secretary of State, with whom lay the final

1 Despatch No. 1119. R.T. 26 December, 1881.

THE DEVELOPMENT OF RATES 103

decision in the matter, viewed it differently. He saw no
reason to impose artificial restrictions in the form of increased
rates on either line in consideration of geographical advan-
tages or other-circumstances. He showed himself favourable
to competition because of its tendency to lower rates. The
managers of the respective lines, he stated, should be
allowed a free hand to fix rates, subject to the control of
Government in extreme cases where, owing to the secure
guarantee, the companies might be induced to charge
unprofitable rates. "I am disposed to think," he em-
phasized, " that the interests, both of the railways and of
trade generally, will be better served by accepting the
legitimate consequences of competition, regulated, as it
necessarily will be, by the desire to apply skill and economy
to the work of management." l

The decision has not been viewed with equanimity by the
interests in Calcutta and it is their constant grievance that
the existence of a uniform mileage rate ignores the natural
advantages attaching to a railway ; and that it presses with
undue and unnecessary severity upon the eastern ports, such
as Calcutta, which are served by railways working at a low
cost, inasmuch as it forces these railways to charge need-
lessly high rates of freight, and that it consequently gives
an unfair advantage to the western ports, which are worked
by railways working at high cost, but which enjoy lower
rates of sea to Europe. 2

This decision of the Secretary of State necessitated an
enunciation of the general principles upon which the railways
should base their charges, and this took the shape of a
Circular issued by the Government of India. 3 The salient
points of it were, that as regards rates in general, the
fundamental aim of the management of a railway should be
to attract the maximum amount of traffic the line can carry,
at the best rates obtainable. These rates must be deter-

1 Despatch No. 132, Railway, of 19 October, 1882.

a Vide Report of the Acworth Committee, Vol. lii, para. 4633. Also
G. Huddleston, History oj the East Indian Railway. For a justification of
the system Vide Ghose, Monograph, Chap. VI.

* No. 162, R.T., 2 March, 1882.

104 INDIAN RAILWAYS

mined in each case according to the ability of the traffic to
bear, the quantity of it obtainable, and the approximate
cost of hauling it ; and that the cost of carriage would be
one of the limits within which rates may vary, the tax which
the trade will bear being the other. In determining any
particular rate, it was added, the whole circumstances of the
traffic must be considered. The theory of equal mileage
rates had been condemned by the Royal Commission of
1867, the Joint Committee of 1872 and the Ashley Com-
mittee of 1881 ; it was, however, held that tapering or
telescopic rates were legitimate as a longer lead involved
a lower proportionate cost. In case of monopoly, the
fixing of rates was a simple matter, in which the State need
only interpose for the purpose of fixing maxima in the
interests of the public ; but where competition was possible,
the basis upon which the calculation of rates must proceed
was materially changed. Capital cost of construction,
gradients, cost of fuel and carrying capacity might be borne
in mind as elements affecting the profits earned, but the rates
must eventually be governed by the necessity of attracting
traffic to the line. As to the point whether in case of
competition between two railways in which the State was
interested these principles could be held to be affected, it
was maintained that they were not. Rival routes must be
left alone to attract the largest traffic they can, and there
would be no interference from the State except to stop
ignorant, reckless or idle rivalry which would injuriously
affect its interests.

Meanwhile, the problem of greater exports of wheat to
England was engaging the attention of the Indian Govern-
ment. In the 'forties and 'fifties, one of the advantages of
railways in India, which carried weight with the authorities,
was the cheap transport of Indian cotton. In the 'eighties,
the need of a cheap supply of Indian wheat for the
European markets was urged. When in 1881 there was
a rise in the price of wheat in Europe, owing to the
small supplies from America, expectations were held that
India would be able to ease the situation. If Indian
wheat, it was contended, could be encouraged, America

THE DEVELOPMENT OF RA"ES 105

could be made to come to terms with England and the
Indian agriculturist would be able to market his produce
with greater profits. 1

The opening of the Rajputana Malwa Railway coincided
with a large growth of export trade in grains, especially
wheat, the new line being able to tap the wheat fields of
the north. American competition was, however, very
powerful, and its success directed the attention of the traders
and of the railwaymen to the methods of freight trans-
portation there. 2 In course of time, competition began to
affect the rates even in India especially on the lines con-
verging from the east and the west to the north.

Thus, the policy of the Government in constructing lines
themselves, managing them efficiently and economically,
and of lowering the rates for the carriage of the cheap
staples, both with an eye to reasonable profits for the railways
and the much-needed development of the railless tracts,
seemed to be crowned with success. The one great motive
which underlay the era of State construction and manage-
ment was cheaper lines and the distribution of the benefits
of the carriage by railway to the greatest number of men
and goods. The aversion of the railway companies to charge
rates which the traffic could bear and the absence of Govern-
ment's control in this respect, must have added force to
the Government's determination. The Rajputana Malwa
Railway was, therefore, used to force down the rates on the
competing lines. After studying the traffic conditions, it
made reductions in rates which resulted in a great stimulus to
traffic. The competing railways had to join in readjusting
their rates so as not to lose their traffic. In the absence of
adequate control over the private companies, Government
had, therefore, to resort to the creation of a healthy rivalry
between the lines in order to give relief to the passenger

1 In the case of a commodity like wheat where the Indian supply is
merely a fraction of the world's total supply, its price at Liverpool
dominates the Indian price. It follows, therefore, that if the price of
transporting wheat is reduced in India, the Indian producer is propor-
tionately benefited.

8 For a brief review of how the American railways were able to reduce
their charges to a seemingly unprofitable level, see Railroad Federations
and the Relations of the Railroad to Commerce, by Joseph Nimmo, Jr., 1885.

106 INDIAN RAILWAYS

and goods traffic. 1 That these reductions in the rates of
grain did not affect adversely the earnings of the lines
upon which they were made, was testified to by Major
Conway Gordon with the presentation of relevant
figures. 2

The policy of the Government was thus in a fair way
towards accomplishment, and it seemed as if the great
idea of Lord Dalhousie, the progenitor of Indian railways,
was materialized. Over three decades had flown over his
words : " Great tracts are teeming with produce they cannot
dispose of. Others are scantily bearing what they would
carry in abundance if only it could be conveyed whither it
is needed." 10,832 miles of railways were since then con-
structed, weaving together the distant cities and ports of
the country ; famine lines were laid out and many a com-
munity protected from that terrible visitation ; the internal
and external trade was expanding ; the agriculturist was
substituting more valuable for less valuable crops, since
his produce was assured of a market ; coal, iron and other
minerals, hitherto not properly exploited, were now mined
and marketed in distant regions ; and this prosperity was
reflected in the general enhancement of the land revenue.

In 1884, a Select Committee of Parliament was appointed
to inquire into the question of the extension of railways for
India. Incidentally they heard a number of witnesses on
the policy of the Government and of the railway companies
relating to rates. In India, the problem did not pertain to
secret rebates or unjust discrimination either between
persons, places or commodities, but that of a proper adjust-
ment of the level of rates so as to attract on to the rails
a large traffic that was already existing. In all directions

1 It is worthy of note that it was the State railways and not the private
railways which were showing a lead in the matter of competitive rates
which increased the traffic of the country. The experience of India is
thus strangely in contrast to that of other countries. Major Con way-
Gordon, in his evidence before the Committe of 1 884, also stated it as his
opinion that the zeal to make experiments with charges generally attri-
buted to private companies was not true so far as India was concerned.
He explained that it took a very long time before railways were induced
to reduce their charges, and that not until a famine occurred and the
Government reduced them from J to J of a pie, promising the companies
to make up the difference themselves.

a Vide Report of the Select Committee. 1884, para. 4325.

THE DEVELOPMENT OF RATES 107

it was proved over and again that the high level of rates
was restricting the flow of traffic ; while the competition of
the indigenous means of carriage, while effective at some
places, did not force down the railway rates. The attempt
of the Government to induce the Companies to levy rates
which would develop the trade in the cheap staples of the
country, was not always successful. The Government may
be said to have a permanent interest in the railways, while
the shareholders of a private venture are merely temporary
tenants, and consequently occasions may arise when the
policy of the latter may conflict with that of the former to
whom the test of a railway's success is the measure of its
benefit to the community.

It seems strange that in spite of the grant of a guarantee
and some other concessions to the companies, the Govern-
ment of India had and should have so little power to control
railway rates in the public interest. Yet the fact admits of
no doubt, and was weightily substantiated by witnesses of
every shade of opinion before the Committee. A not neg-
ligible factor in this situation may be sought in the existing
relations between the Secretary of State, the Government
of India, and the companies. The Secretary of State used
his general powers of supervision and control over the
Government of India in too many matters of detail, and
frequently neglected to attach due importance to the view of
the administration which was on the spot and in daily touch
with the problems of the land. 1 He had entered into con-
tracts with the companies, but even in their revision and
modification, the Government of India were sometimes not
consulted or their suggestions not accepted. To wit, the
modification of contracts with the companies in 1868,
and the renewed contract with the South Indian Railway
Company in 1910 events of no small consequence were
entered into by him against the express disapproval of the
Government of India. The position of the latter was made
still more awkward by the constant appeals of the companies
to the Secretary of State whenever they happened to differ

1 For detailed exposition, vide The Governance of British India, by
N. B. Mehta, Chap. I.

108 INDIAN RAILWAYS

from the instructions of the Government of India. 1 Further,
the contracts were so loosely worded that the companies
subsequently turned them to suit tneir own interests. 2
In the contracts with the old guaranteed companies the
Government evidently possessed, as they were- intended to
possess, a power of control over the rates and fares levied
by the companies. But the pertinent clause was so construed
by the companies as to suggest that once the Secretary of
State had exercised his power, the right to any later control
had come to an end until the profits of the companies had ex-
ceeded ten per cent. 3 Since the limit of ten per cent was
scarcely reached by a company, it was tantamount to the
removal of all control over the charges. The absence of
Government control was and has been a weak spot in the
administration of railways in India. Major Conway Gordon
and Mr. Rendel both concurred in their conviction of the
practical worthlessness of fixing the maxima, 4 the general
reluctance of the companies to lower their charges, and the
need of some real control upon them in the interests both of
the community and of the companies themselves.

The views of the traders were not dissimilar. The regula-
tive force of competition, they held, was for practical

1 Vide the evidence of Sir William Meyer and of the Governments of
Madras and of the United Provinces before the Acworth Committee.
Testifying before the same Committee, the U.P. Chamber of Commerce
stated, " Theoretically the control vested in the Board (Railway) may
be adequate the companies complain that it is excessive but a general
impression prevails among the public, rightly or wrongly, that in important
matters the powerful London directorates, with great influence at home
and with easy access to the Secretary of State for India, often prove too
strong for the Railway Board.' 1

a Vide the Report of the Committee on the East India Railway Bill, 1879.

' Evidence before the Select Committee, 1884, para. 4410. Also
Infra, Chap. VI.

4 Even in the later contracts the opportunity of reducing the maxima was
not availed of. In the contract with the East Indian in 1879, the rate
for minerals and agricultural produce, for not less than 300 miles, was fixed
at one-sixth of a pie per maund per mile ; with the Bengal Central in 1881
at one- third of a pie ; and with the Southern Mahratta and the Bengal and
North Western in 1882 at one-fifth of a pie. It was brought out in the
evidence before the Select Committee, 1884, that the rates and fares
prescribed by the Bengal Central without any power of reduction by the
Government, were " most injudiciously high." Para. 4413. The experi-
ence of England was similar. By 1892 it was seen that the maxima were
of little avail in preventing excessive rates. They have no place in the
new dispensation and their purpose is served by other methods.

THE DEVELOPMENT OF RATES 109

purposes non-existent, while the control which was vested
in the Government according to the original contracts was
unwisely limited in 1868, for with the high maxima fixed,
their control- to all intents and purposes was nil. They
argued that Government ought to have the power of revising
and fixing rates from time to time. 1 John K. Bythell
testified that in 1881 the rates on the G.I.P. were increased
from 3.36 per cent to 21.79 per cent, with the result that
the area served by the railway was curtailed by ten miles
on each side. 2 Other witnesses contended that since the
railways were guaranteed Government should have absolute
control over rates ; and further, that a railway Commission
on the English model would prove a great boon to the
traders. 3 The Committee, struck by the almost unanimity
of evidence in regard to the existing drawbacks suggested
that Government should keep with them " a power of fixing
or from time to time varying the maximum of fares and
rates, subject to adequate provisions to secure the interests
of investors." *

The pronouncement of 1883, which came in the wake of
the Calcutta-Bombay controversy was of too general a
nature to ease a situation which was waxing complex with
competition. Reductions in rates were practised everywhere
with the idea of retaining traffic or capturing that of the
neighbouring lines ; spheres of influence were formed and
were jealously guarded from encroachment ; and occasions
for friction between the lines became more frequent. Move-
ments towards amalgamations, leases and agreements were
also more noticeable. The stimulus imparted to the grain
trade had concentrated this activity in the North- Western
Provinces. Yet elsewhere there was no lack of indications
that the country was passing from a simple to a more
complex stage of development. The Government received
increased complaints from the railways touching the unfair-
ness of rates and calling upon them to establish justice.

1 Minutes of Evidence before the Select Committee, 1884, para. 2616
a Ditto, paras. 3364, 65.

* Ditto para. 2569. Also the testimony of Juland Danvers, Government
Director of Railways.
4 Report, para. 27.

no INDIAN RAILWAYS

In a period of about a decade a transformation had come
over the railway situation. In the earlier period the lines
were so disjointed and isolated that competition hardly
existed, and charges were levied on purely local considera-
tions. With the extension and junction of lines, their inter-
ests crossed the local bounds and as intermediaries they
became interested in rates to distant ports and cities. They
had ceased to be "chemins d'interet local" and had expanded
into " chemins d'interet general." Under the circum-
stances, the erstwhile Government policy of the minimum
of interference had to give way to a policy of greater defini-
tion and closer regulation of the powers of the lines.

It was at this stage, 1885, that the Government proposed
the desirability of establishing a Clearing House for the
Indian railways. They were undoubtedly concerned with
the strong competition which the export trade had aroused,
and had conceived the idea of instituting an independent
Clearing House which would settle the disputes of the
railways and work in the direction of unification and sim-
plification of the classification. But the Secretary of State
was not convinced either of its utility or of the insufficiency
of the Government's influence under the contracts or as
managers of the State lines to settle competitive rates.
While the companies, with their fast-growing separatist
tendencies were too jealous of their powers to listen to the
proposal, which they dreaded as an invasion upon their
liberty. And yet some line of guidance besides mere in-
fluence or the enunciation of broad principles was necessary.
In 1887 consequently, the Government of India issued a
resolution in which the following schedule of maxima and
minima rates for goods was fixed : l

Maximum Minimum
Pies per maund Pies per maund

per mile per mile

First Class .... J -^

Second Class .... \ \

Third Class .... f f

Fourth Class .... |-

Fifth Class .... i i

1 No. 1446. R.T., dated 12 December, 1887.

THE DEVELOPMENT OF RATES in

The maxima rates have also been fixed in other countries
as protection to the public from excessive railway charges.
The minima were, however, peculiar to India ; they were
based on the .average cost of haulage, their sole aim being
to protect the State from reckless or ill-considered charges
which a railway in competition may be tempted to impose
under cover of the guarantee and imperil the financial
stability of the State. They thus ensure the observance of
the principle of charging not less than what the railway
will bear.

The resolution explained that charges to the public may
be divided into mileage charges and terminals. For the
latter no maxima were fixed, but in case of dispute Govern-
ment had the authority to fix them reasonably. 1 Within
the maxima and minima complete latitude to any alterations
by the companies was reiterated. The urgency of affording
through facilities was insisted upon, all railway administra-
tions were enjoined to aim at public service as if they were
under one management and be contented to receive for their
share of the through rate less than the ordinary local rate.
Undue preference was condemned. The classification of
goods existing on the East Indian was proposed for adop-
tion by all, unless it was unsuitable, or was repugnant to
the terms of the contract.

The resolution was no sooner promulgated than it was
revealed that the schedule therein was taken objection
to by the companies. In the rates for goods, except
for the first class, the maxima and minima were the same,
and it was rightly contended that the freedom of the
companies to alter rates was, therefore, nil. Rates could
only be changed by altering the classification, for the
uniformity of which Government had all along been
endeavouring. It was, therefore, decided to fix separate
maxima and minima ; but no alteration in classification
was to be permitted without the sanction of Government.

1 British experience on this point was found profitable. The attempts
in Great Britain in 1861 and 1866, to fix a maximum for terminals had
broken down because the maximum agreed upon between the railways
and the traders was actually much higher than the existing
charge.

112 INDIAN RAILWAYS

The revised schedule was published in 1891, and was as
follows : 1

Pies per maund per mile
Maximum Minimum

First Class ....
Second Class . . . .
Third Class ....
Fourth Class .. ..
Fifth Class .. ..
Special Class .... rV ''

The problem of the level of rates on Indian railways
was reviewed in the early years of this century by two
railway experts who had travelled both in India and in
America and had studied there the respective traffic con-
ditions and the policy of rates. The light which they throw
on the comparative level of rates in the two countries and
their suggestions to remedy the situation in India are even
to-day distinctly valuable. The problem of the comparative
level of rates in the two countries, with dissimilar economic,
social and physical environment, is one requiring the most
delicate judgment and involves a minute valuation of a
multitude of factors. These difficulties need not, however,
evoke despair, and the result achieved, even though approxi-
mate, is likely to prove an important source of improvement
and guidance.

Mr. Robertson in his Report 2 calculated that the actual
payment made for railway transport in India was lower
than in England ; the proportion being 6.72 pies per ton
per mile for merchandise in India to 23.76 in England;
while for minerals, it was as 3.55 to 9.34. But after taking
into account the different circumstances in the two countries,
he came to the conclusion that before rates in India could
be regarded as equal to those in England, the rates for
merchandise in the former country should be lowered by
from thirty per cent to sixty per cent, and those on coal
by from forty per cent to sixty .per cent. This was surely

*No. 56. R.T., dated 16 July, 1891.

a Report on the Administration and working of Indian Railways. 1903.

THE DEVELOPMENT OF RATES 113

a large reduction which he suggested, but that it was not
impossible of adoption could be gathered from the fact that
despite the 'higher co^t of construction and operation, the
rate for merchandise in America averaged under 4,344 pies
per ton per mile ; while maize, under the stress of water
competition, was carried at less than two pies. He argued
that, considering the long distances, the rates in India were
too high for the development of traffic, 1 especially those on
coal which forced it to go from Calcutta to Bombay by sea.
He further suggested that the rates in India should be on
a tapering scale so that there may be a sufficient reduction
in rates for long distances. For through traffic, he empha-
sized the suggestion made in the resolution of 1887, that the
reduction in rates should always be applied on the whole
distance and not merely on the local distance of the indi-
vidual railway.

Mr. Priestley, in his report, 2 felt struck by the perfectly
commercial manner in which the railway business was
conducted in America, and yet with an eye to the general
development of the country. The rates there were lower
than in any other country, the average charge per ton per
mile in 1902 being 5.08 pies ; while it was 5.68 pies in India.
In the same year the returns on the railways in both countries
were 4.92 per cent, notwithstanding the fact that the Ameri-
can railways " charged very large sums to operating ex-
penses which would be charged to capital in India." He
agreed with Robertson that the success of the American
railways was accountable to their low rates which had
developed their traffic enormously. " The American rail-
ways/' he went on to say, " make their income by small

1 " If in America," says Weld, " transportation charges form such an
important part of the difference between what the producer receives and
what the consumer pays for perishable goods, the need of reducing the
cost of transport in the Orient is very much greater, for three reasons :
in the first place, the eastern countries have not the close reticulation of
efficient means of transportation such as England and America possess ;
again, the bulk of the product of the Oriental countries is agricultural,
and much of this product is perish a,ble goods ; also the heat of the climate
causes the danger of deterioration of perishable goods to be much greater
than in western countries." India's Demand for Transportation, p. 38.

2 Report on Organisation and Working of Railways in America , 1903.

U4 , INDIAN RAILWAYS

profits per unit and large volume, while Indian railways
make their income by larger profits per unit and smaller
volume/' a feature which, as noticed previously, has re-
stricted the progressive utility of the " iron horse " in
India. He noted that for approximately the same distance,
the rates per ton per mile for grain were : On the North-
Western, 3.14 pies, on the East Indian 2.92 pies, on the
Bombay Baroda and Central India, 3.22 pies, and on the
Great Indian Peninsula, 2.91 pies ; the corresponding
average American rates being 2.07 pies for export and
2.67 pies for domestic use. The average haul of the traffic
was 158 miles in India and 131 in America ; the advantage
thus was on the side of the former.

The passenger fare by an ordinary car in America was
11.88 pies per mile, while in India the third-class fare was
2.33 pies , and was thus much lower than in the former
country. But in discussing what the relative traffics could
bear, he figured out that the wages of an unskilled American
labourer were Rs.3.i4.6 per day, and that of an Indian
varying from Rs.3.i2 to Rs.7.8 a month. By the expendi-
ture of one day's wages the American labourer could travel
sixty-three miles, while his Indian contemporary could do
no more than 10 miles for them. In fact, therefore, the
third-class fare was higher in India than in America. He
concluded that if low charges were found necessary in
America to ensure an adequate development of business,
their need was greater in India, where the margin as well
as " the whole sum available for expenditure by the multi-
tude was so small."

During the war and after the trend of prices was
upwards the world over. Railways, or for the matter of
that, all communications, have a tendency to equalize
prices and wages within a country, and create a more sym-
pathetic bond between the distant territories of the world.
Thus the rise in prices and wages in Europe had its effect
in India. The operating expenditure increased fast, the
earnings fell off and consequently it was decided to raise
the charges on Indian railways.

THE DEVELOPMENT OF RATES 115

Besides, this was the period which saw the final cessation
of competition in rates and fares between the railways.
After a long period o competition among themselves, they
had realized the advantages of combination or agreement
for the division of traffic and had practically mapped out
their own spheres of influence. These two factors combined
to make enhancements in charges necessary and possible ;
and these were effected from i October, 1916. Note must
be made of the fact that the rise in the rates was effected
for the most competitive traffic which was that to and from
the ports.

In the meantime, the exigencies of the war had checked
the expenditure of any further capital upon the railways,
and the situation was aggravated by the difficulty of obtain-
ing materials from England. Repairs and renewals were
heavily suspended. Much material was also despatched
outside the country to the field of war. The abnormal
situation thus created was reflected in the increased operating
expenses. In order to ease it, a curtailment both of passenger
and freight services was decided upon, and this was accom-
plished in 1917 by raising the maxima for passenger fares,
and imposing a surcharge upon the carriage of goods by
railway.

The income out of the surcharge was treated not as regular
railway revenue, but was taken over by the Government
for their general purposes. The surcharge was further
increased in 1921. The peculiar arrangement placed the
railway companies in the unenviable position of having to
collect a tax which brought no grist to their mills. The
contention of the Government that it was a war time
measure, and that an alteration in the general maxima
charges, as demanded by the companies, would require
an amount of attention which could only be bestowed after
the war had terminated, carried no conviction with them.
They complained, and with justification, that it was unfair
to them and constituted a fr each of contract on the part of
the Government. 1 From the point of view of the traders

1 Report of the Acworth Committee, Vol. I, para. 73.

Ii6 INDIAN RAILWAYS

the surcharge was equally objectionable, for they had to
pay it as if there was an increase in the rates and yet they
derived no compensating advantages which would have
accrued to them had this revenue been expended upon
railway property. The Government laid themselves open
to the charge of imposing a transit duty upon the traffic for
the general purposes of the country. From the commercial
point of view they had appropriated money which should
rightly have been applied for the maintenance and improve-
ment of the property from which it was obtained, and of
which, in fact, the railway stood sorely in need.

With the gradual resumption of normal conditions,
the operating ratio again commenced to soar. While it had
sunk to 45.12 per cent in 1917-18, in 1920-1 it rose to 65.54
per cent. The percentage of earnings on the total capital
also began to fluctuate. While in 1918-19 it was as high as
7.53 per cent, in 1921-2 it came down to 2.75 per cent.
Thus, for the first time after 1900, the railways were operated
at a loss to the State. The general deterioration of the
railway service and the rise in wages and in the price of the
materials, compelled a stern facing of the situation. Charges,
it was decided, must again be increased. A substantial rise
in railway charges had already been accomplished in other
countries. In India, on the other hand, the rise both for
passengers and goods had only amounted to thirty per cent.
The Acworth Committee, in their cursory review of the
situation, remarked that the charges were not exorbitant ;
on the contrary, they thought that they were among the
lowest in the world and that a general and substantial
increase was overdue.

In 1922, the surcharge was replaced by higher maxima,
thus affording hard-pressed lines to make both ends meet
by re-adjusting their charges. While the commercial com-
munity was averse to any increase, it was realized by the
Government that efficient rervice, implying certain and
prompt conveyance, though it might involve a slightly
higher payment, was preferable to a service which was
liable to break down at the slightest pressure of increased
traffic. The new schedule of maximum and minimum

THE DEVELOPMENT OF RATES 117

class rates for conveyance of the more important lines is as
follows : l

Pies per maund per mile
Maximum Minimum

First Class . . . . -38 } -100

Second Class . . . . -42 )

Third Class .. .. -58

Fourth Class . . . . -62

Fifth Class .. .. 77

Sixth Class . . . . -83 *i66

Seventh Class . . . . -96

Eighth Class . . . . 1-04

Ninth Class . . . . 1-25

Tenth Class .. .. 1-87

It will be observed that the former five classes with one
special class are now increased to ten classes. This will
permit of a better adjustment to be made in the classification
of different articles. While the new schedule has enhanced
the limit of rates by from fifteen per cent to twenty-five
per cent, the railways are not charging anything like the
maxima permissible.

During the period under review, the policy of charging
rates underwent a significant modification. The Rajputana
Malwa Railway heralded the introduction of a careful study
of traffic conditions on the basis of which rates were profit-
ably lowered. Competition had commenced and efforts
were directed to capture extra local traffic. The other lines
had to follow this method, so that a period of rate-cutting,
especially for the competitive traffic to the ports began.
The trade of the country re-acted to this stimulus. No-
where, however, did these practices assume the unscrupulous
and demoralizing forms which they did in America. Rate-
cutting could not, and did not last long. Where combination
is possible competition is neutralized. Realizing the futility
of competition, and influenced partly, no doubt, by English
precedence, the railways entered into agreements one
with the other in the matter of routing and the division of
traffic. The period of coripetition ended in 1916, from
which date we may mark a spirit of reorganization, and a

1 For coal the minimum is still lower and varies with the distance the
consignment is conveyed. Terminal and short haul charges are extra.

n8 INDIAN RAILWAYS

not unnatural tendency to raise rates which had been cut
previously. This tendency received an impetus during
and after the war, when to meet newer conditions, rates
were increased on all the lines.

(4) Problems of Unification and Co-operation
The marked individualistic tendencies of the railway
companies have been responsible for divergent classifications
and an un-uniform and complex tariff. Since the 'eighties,
the Government have expressed themselves in favour of
greater uniformity for the facility of through and long
distance traffic. The lack of simplicity pervading the
tariff of the East Indian was noted in 1872 by the two
Committees which inquired into its rates policy. So also,
on other lines the merchant was experiencing difficulty
in making calculation of the charges on his consignments.
The urgency of a solution to this problem became so
imperative that Government in 1876 called a conference of the
traffic officers of the several railways. The main points
which Government wanted it to discuss were the feasibility
of a Clearing House for India, and the simplification and
reduction of the goods tariff. Owing to famine the Con-
ference, however, could not meet. A minor one met in
1879, an d another in 1880 ; but the subject did not receive
sufficient attention until 1887, when the Government
themselves attempted to formulate a policy of guidance.
" The various railway systems," they suggested, " should,
as far as possible, serve the country as if they were under
one management, and the dealer in country produce should
not be hampered in his operations by the necessity to base
his calculations on as many different scales of rates as there
may be railways between the starting point and the destina-
tion." i

The Railway Conference of 1888, did not accept this
view of the Government, and resolved that though the end
was desirable, each railway should endeavour to make its
own classification and conditio is uniform with others as
far as may be practicable. The resolution of 1887 was
accordingly modified by the Government in 1888.

1 No. 1446 R.T., dated 12 December, 1887.

THE DEVELOPMENT OF RATES ng

In 1885, the suggestion of the Government of India for
the establishment of a Clearing House did not meet with the
approval either of the Secretary of State or of the various
companies.

Mr. Robertson, in his Report in 1903 found that no head-
way towards uniformity or simplification of the tariff
was being made, and reiterated the advisability of instituting
a Clearing House for India on the English model.

The lack of any progress in this direction, it may be
argued, has been, owing to the difficulties in the way of its
achievement. It may be contended that in the different
territories served by railways, the importance attached to
the commodities may vary, and that, therefore, a uniform
classification may tell upon the earnings of some lines.
While undoubtedly this would be a serious obstacle in
some countries, in India its force is minimized. For there
a few of the staples form by far the most preponderant
element in the carriage of practically all the railways. The
real difficulty lies in the reluctance of the companies to move
in the matter. They have put their interest always before
the interest of the community they serve and have in that
spirit looked with scepticism and distrust upon many a
useful innovation suggested by the Government. Yet
throughout the history of railways, we have ample evidence
of the need of reforming the tariff for the easy movement
and development of the trade.

Col. J. G. Medley did not overdraw the picture when,
dwelling upon their attitude, he remarked that each guaran-
teed line had become " an imperium in imperio " and that
" Government had often had a hard task to compel uni-
formity of action in the joint interests of through traffic.
. . . The complication and want of uniformity in the goods
classification of all Indian lines has been a subject of reproach
and almost a standing jest to the public." He added that
the most elaborate rules were framed about the carriage of
articles which were of comparatively little significance to
the railways. 1

These views were endorsed by the successive Government

1 Col. J. G. Medley, Railways in Upper India, 1884.

120 INDIAN RAILWAYS

Directors of mdian Railways. As a result, in 1505, the
Government appointed the Tariff Simplification Committee,
which consisted of railway officers, borne uniformity was
attempted by this Committee, and the Railway Board,
accepting their Report at first put into effect the general
classification as proposed by them. The commercial
community, on being apprised of it, however, objected to
the scheme on the ground that in securing uniformity the
Committee had levelled the charges up and that it was, in
consequence, detrimental to trade. 1 The scheme was,
therefore, rejected by the Railway Board. Although the
idea of uniformity did not materialize then, the railways
are realizing, rather tardily, the advantages of it, and are
working towards its accomplishment. 2

In pursuance of the resolution of 1891, railways are not
entitled to transfer goods from one clas~ to another without
the prior sanction of the Government. If any railway
desires an alteration in the classification of any commodity,
the procedure to be followed is to refer the case to the
Classification Committee of the Railway Conference, who
would forward the proposal, after consideration, to the
Railway Board for their approval. The Secretary of State,
however, possesses the power to make any alteration in it
on his own initiative, although ordinarily he must give a
three months' previous notice. It may be explained that
the power which the Government of India possess in the
matter of fixing the rates for parcels and luggage for which
there are no separate maxima and minima is delegated to
the Railway Conference Association. The public have no
right of appeal regarding these from the decision of the
Association. The Association has no power over rates and
fares, which may be settled by two or more lines among
themselves. The Association, in short, is mainly a consulta-
tive body framing regulations for the management of
administrative details, and ac f s in an advisory capacity to
the Government.

The problem of through rates has not yet been grappled

1 See para. 4797 Minutes of Evidence, Acworth Committee.
9 For tariffs which give rise to much delay and misunderstanding.
Vide R. S. Chandrika Prasada Tiwari, op. cit. t p. 451.

THE DEVELOPMENT OF RATES 121

with in a satisfactory manner by the railways. The pro-
vision of through facilities and tapering or telescopic rates
is required and expected of the lines by the rules formulated
by the Government in 1887, as well as by the Indian Rail-
ways Act, 1890, but the companies with their particularistic
proclivities have not yet been sufficiently convinced of their
benefits to themselves to act upon it. Each company, at
the present day, gives the benefit of telescopic rates to
traffic passing over its own line as far as the junction, so
that traffic passing over two lines loses the benefit due to it
if the rates were calculated as chargeable over one line. 1
This is anomalous in India where the bulk of the railways
are the property of the State. It amounts to levying an
indirect toll on through traffic and is detrimental to the
development of commerce. This adds strength to the
conviction that the policy of Government after 1880, until
recent times, of handing over their lines to be managed by
joint-stock companies, has not redounded to the credit of
the country. The lack of development of certain areas and
the absence of a better exchange of commodities between
the south and the north, especially between the Central
Provinces and the Madras Presidency in cotton, can only
be explained as the result of withholding telescopic rates
d base decroissante which imposes a burden which the traffic
cannot bear. 2

Both Mr. Robertson and Mr. Priestley drew attention to
this impolicy, the former stating that according to the
Railways Act, 1890, the railways were expected to offer
lower through rates, though it was rarely done in practice.
He also explained it as a potent factor in the high level of
rates extant in the country. 3 The Indian Industrial
Commission, in their Report harped on the same

1 For exceptions vide Ghose, Monograph, p. 225. In India only a railway
can demand a through rate. In England and in America both the trader
and the railway are entitled to it. The Interstate Commerce Law requires
the railway companies "to arT >rd all reasonable, proper and equal
facilities for the interchange o' traffic between their respective lines/'
and it prohibits all devices in ended to prevent the carriage of freight
from being continuous from one place to the other. Vide also the British
Railways Act, 1921, sec. 47.

a Minutes of Evidence, Acworth Committee, para. 2814.

1 Report, sec. 195.

INDIAN RAILWAYS

chord. 1 Even in England and America, where the railways
are private concerns, tapering through rates are offered to
the trader, for in the long run they worK out profitably to
the lines. So in India, tapering rates calculated over the
whole distance on the different lines would, by increasing
the flow of traffic and the prosperity of the country, prove
equally beneficial to the companies.

Finally, but not the least, we should consider the influence
which the community can bring to bear upon the manage-
ment of the railways. It was explained elsewhere that the
besetting sin of the Railway Board was its lack of touch
with public needs and commercial opinion. The evidence
before the Acworth Committee brought the same defect out
into prominence as regards the relation between the users
and the managers of the railways. That no railway under-
taking can be successful unless there is a feeling of harmony
and a sense of appreciation of mutual difficulties is an
accepted postulate, and yet it cannot be over emphasized.
Equally is it a truism that harmony and sympathy of
interests are difficult to attain, for the interests of the trader
or of the passenger, inspired as they are by ideas of personal
gain or comfort, are often difficult to reconcile with the
interests of management, especially if that management be
guided primarily by its duty to its shareholders. For in
the latter case, development of dividends is the essence of
its being and the criterion of its success.

The feeling in India that railways which are leased by
the State to the companies were managed out and out
commercially and not as essential communications for public
convenience, found evidence in the testimony before the
Acworth Committee. 2 A caveat must be thrown in that
the surgent spirit of democracy imputed crimes to the
companies for which they were not entirely to blame. The
Armageddon had disorganized the economic fabric of the
nations and India and her railways did not remain un-
affected. Furthermore, the condition of the national

\

1 Report of the Indian Industrial Commission, 1919 (Cd. 1765),
Chap. XIX.

8 Also before the East Indian Railway Investigating Committee, 1871,
and the East India Railways Committee, 1884.

THE DEVELOPMENT OF RATES 123

exchequer and the uneconomical policy of the Government
towards the railways were not a little responsible for the
deterioration of railway property and service. Over these
evils, railway-companies had no control. At the same time,
the policy of the companies did not a little to exacerbate a
situation which was already uneasy. Under the shibboleths
of lack of rolling-stock and the parsimony of the Government,
they strove to shelter themselves for many of their own
sins of commission and omission.

The public complained that the policy of the companies
was one of unmixed commercialism, and that consequently
they were indifferent to the needs and the aspirations of the
public. The managers of the railways attempted to make
out that the relations between themselves and the public
were good and capped it by stating that complaints were
few and these were satisfactorily attended to. The state-
ments of the witnesses did not bear out this contention.
The mercantile community explained the scanty number
of complaints on the score of the prevailing feeling of help-
lessness and despair of remedy. The altitude of public
agitation against company management, it was mentioned,
could be gauged by the number of non-official resolutions
in the Imperial Legislature.

The same conflict of opinion existed as to the need of
raising charges. On one hand it was contended that the
fares which were increased in 1917 were mainly for the
purpose of restricting traffic, though it was admitted that
an increase in earnings had thereby resulted. Further, that
the value of the commodities had exceeded forty-four per
cent, which was more than the increase in charges, so that
the railways were still charging less of the value of mer-
chandise than formerly. A rise in charges was unavoidable
if a seven per cent return on capital was to be maintained. 1
The increase in average rates since before the war was
comparatively less in India, being thirty per cent as against

Lt.-Col. E. Barnardiston, representing the Government of Madras,
stated before the Acworth Cor imttee that the South Indian Railway
were very reluctant " to add to the capital of their line for fear of reducing
dividends even temporarily." This meant inadequate facilities for dealing
with traffic.

1 Minutes of Evidence, Acworth Committee, para. 4056 et. seq.

124 INDIAN RAILWAYS

one hundred ana twelve per cent in England and eighty per
cent in the United States. 1

The claim of the traders was that whik the railways must
charge sufficiently to be self-supporting, they must not
be worked, public property, as they were, mainly with a
view to earning dividends like ordinary commercial concerns.
They should aim at earning sufficiently to be able to balance
working expenses and interest charges and a small surplus
to ensure being on the safe side. 2 The two Madras railways
were earning 9 per cent and upwards, which were
" substantiatial dividends," and the Chairman concurred
with this view. 3 Taking all the lines together, good and
bad, their average earnings were found to be 6J to 7!
per cent, which, it was argued, were very satisfactory
for railways. This again includes the deficit on the
military lines, so that if an adjustment of accounts
were made and the deficit charged to the military
budget, the earnings would show still better results. 4
And this is a perfectly legitimate attitude, for, as
previously observed, strategic railways should surely be
viewed in the same light as military fortifications and their
expenditure debited to the military account. It was further
urged that charges must not be increased until a deficit
was proved, and after all the avenues of economy were
exhausted. 5 The principle upon which the Port Trusts
are worked was recommended for adoption on the railways.
If a rise in rates was inevitable, much of its hardship, it
was pleaded, could be obviated by a re-classification of
goods, removal of anomalies, increase in the minima for
comparatively costly articles, and enhancement after a
careful examination of the rates to and from the ports.

These points are worth consideration. Railways, it is
now acknowledged, could be run as profitable concerns not
so much by raising their charges as by efficiency of manage-

Ibid. 5499- \

Ibid. 4682.

Ibid. 4688. 1

Ibid. Vol. IV. f p. 171. *

Ibid. The Southern India Chamber of Commerce represented before
the Acworth Committee that they were not opposed to an increase of
rates so long as it was not done as a means of earning larger dividends.

THE DEVELOPMENT OF RATES 125

merit and economy of operation. It is by these means that
American railways have been able to work with commercial
success in spite ot their low charges. This aspect of the
problem has been neglected in India, but that sufficient
scope in that direction exists is testified to in the Report of
the Inchcape Retrenchment Committee.

One more failing of the Indian railways in the eyes of
the commercial community is that classification and charges
are frequently altered without intimation to the public.
The Southern India Chamber of Commerce laid emphasis
on the fact that they knew nothing of what was in view
until changes were actually announced. They desired that
in fairness they should be given an opportunity of repre-
senting their views before action is decided upon. 1 The
grain merchants of Bombay complained that proposals
for increase in rates or formulating new rules put forward
before the Railway Board by the companies, were sanctioned
without being placed before the public for the expression
of its views. 2

Since the contracts with the majority of the companies
have still to run for a number of years, it was proposed by
many witnesses on both sides that the institution of advisory
Councils would go a long way in mitigating the present
situation. In view of the fact that 95 per cent of
the capital of railways has been raised and owned by the
Government, it was claimed by the traders that the public
were entitled to some share in the management of the
property. Their difficulties, they added, should be discussed
and settled across the table, instead of being delayed on
the plausible explanation that they were referred to London
or to Delhi. It must be added that on two of the railways,
the East Indian and the Eastern Bengal, there were advisory
councils, but their personnel left much to be desired. So
that on the whole, there was really no machinery through
the medium of which the railway managements could keep

1 Ibid., para. 4918. Class! ication cannot be altered without the
sanction of Government. What was meant was that a number of special
rates were withdrawn by the railway companies without notice, so that
the ordinary class rates became applicable.

'Vol. IV., p. 183.

126 INDIAN RAILWAYS

themselves in touch with the requirements of the public. 1
Personal contact in the industrial dispensation engenders
sympathy and sympathy is a psychological cure for many an
evil. The public en masse, of course, cannot dictate policy
to the railway executive except through the channel of their
elected representatives in the parliament or legislature.
But influence it could have by exerting pressure in repre-
sentative advisory councils. The Acworth Committee
realized the urgency of such bodies and pertinently illus-
trated it by stating that though in no country was the
railway control more autocratic than in Prussia, still
" it would probably be true to say that, in the generation
before the war, the railways of Prussia were subject to less
hostile criticism from their public than those of any other
country." 2 They recommended a Central Advisory Rail-
way Council to meet at the capital, and Local Advisory
Councils 8 for all railways administrations. It was anachron-
istic that such a large public business should have been
managed, until recently, without such councils. Their
establishment now is but in conformity with prevalent
Zeitgeist, and they have already done much in educating
public opinion and in creating a sense of unified interests
between the railways and their patrons.

1 Apropos the statement of the Select Committee of 1882 in England
may, with greater force, be applied to the situation in India. " Private
persons have often a great difficulty in approaching a railway company,
and fail to seek for or obtain information which ought to be at their
disposal. In the present relation of railway companies to the public,
it is eminently to the interest of both parties, as it is the right of the
public, that the dealings of the companies should not, like the dealings
of private traders, remain a matter of private arrangement to be disclosed
or not as they think fit, but that they and the reasons for them should be
open to all the world."

3 Report, para. 139. Vide also Schumacher in State in Relation to
Railways. Railroad Ownership in Germany in Ripley's Railway
Problems. Report of the Board of Trade Conference (Cd. 4677).

3 See Memorandum regarding Local Railway Advisory Committee.
Administration Report of Indian Railways in 1922-3.

CHAPTER V

COMPETITION AND RATES DISCRIMINATION

THE raison d'etre of preferential and differential rates lies
in the very nature of the railway business as it is conducted
to-day. The three characteristics which explain and justify
their existence are that the industry partakes of a mono-
polistic form ; it reacts to the law of increasing returns ;
and its service is produced at joint cost.

Owing to the remarkable influence which the British
railway theory and practice have had upon Indian railway
management, and because British experience is the oldest
and most typical, it would be instructive to trace the
experience of Great Britain in the matter.

On the morrow of the construction of the pioneer railway
there, an unforseen development presented itself which,
while differentiating the new from the old modes of transport,
imparted to it a practical monopoly. It was expected before
its advent, that it would conform to the principles and
methods prevalent on the turnpike roads, that the railway
company would own the road-bed in the same wise as a
canal company owned its canal, and that any individual
could own cars and run them, as were the barges, on the
payment of a toll. It was anticipated on the basis of this
resemblance that competition would exist between the
diverse carriers on the railway and thus prove instrumental
in regulating their charges. This was, however, not to be :
it was found that the most convenient system would be for
the owners of the road-bed to supply the motive power and
the rolling stock. This combination of functions at once
differentiated the railway from the turnpike or the canal
and virtually eliminated competition from that sphere.

It seemed as if sufficient scope for inter-railway competi-
tion did exist ; and the early legislators who combined a

127

128 INDIAN RAILWAYS

great faith in competition with an abhorrence of monopoly,
strove to promote competition between the railways them-
selves, and between them and the canals. The one great
advantage which, it was held, competition would bring
about, was the establishment of reasonable rates. The
ineffectiveness of competition was discovered quite early in
Great Britain, and since then the prevalent belief has been
that railways are essentially monopolies and should " both
legally and adminsitratively be treated as such." l The
recent increase of harmonious relations between the railways
and the progress of consolidation and amalgamation among
them has accentuated still further the existence of monopoly
conditions in the railway service. It is acknowledged not
only that it is a monopoly, but that in public interest it had
best be conducted as such with the provision of state super-
vision and control over it. 2

Now the object of a monopolist is to take advantage of
the absence of competition and the consequent limitation
of supply, to charge such a high price that the gain netted
from the rise in price is offset by the restriction in business
done. In fixing his price, he considers the intensity of the
demand for the article, the capacity of the article or service
to bear the charge, and also the possibility of some substitute
entering the market. He can earn a high profit by charging
a uniform high price, but it can be higher if he charges
differential prices according to the capacity of his customers
to pay. In some cases it may so happen that the charging
of a uniform price would be unprofitable, while differential
charging would prove remunerative. A peculiar outcome
of the system of differential charging is that some of the
goods may be sold at less than the average cost of production,
without on the whole entailing a loss upon the monopolist.

The railway again is an excellent illustration of an industry

1 Ripley, Railroad Problems, Introduction.

a Railway is called a monopoly, because at intermediate points upon
it'there is no competition. In certain respects, however, it may be held
in the light of a semi-monopoly rather than a complete or an essential
monopoly inasmuch as there is the possibility of competition by other
railways or modes of transport; and secondly, its power of charging
is limited by the State as well as by the operation of the law of supply and
demand.

COMPETITION & RATES DISCRIMINATION 129

which operates according to the law of increasing returns or
diminishing costs. Once a large capital is invested in the
undertaking, it is comparatively less costly for it to handle
a dense than a light traffic. For, since the capital costs and
the fixed operating costs continue to be incurred whether a
particular consignment be carried or not, it is permissible
for the railway to carry it at a rate which covers its move-
ment expenses and contributes even a disproportionately
small share to cover the constant expenses. The railway,
by the action of the law, is thus invested with the power of
deciding whether an article shall pay a small or a large share
towards the constant expenses and thus whether the rate
upon it shall be high or low.

The railway industry again is large scale, involving an
enormous permanent investment, and thus the costs of its
various products or services are joint and incapable of
mathematical allocation. When commodities are produced
jointly, the problem of their price transcends the stage of
simple competition and the price depends upon the intensity
of demand for them. This feature thus invests the traffic
manager with the power of delicately judging the ability of
the articles to bear a particular charge in fact, with the
power of discrimination. 1

The principle of discrimination thus resolves itself into
charging what the traffic will bear. It is not inherently
objectionable and is a feature common to all business, and
its absence would be detrimental to the best interests of
society. Equitably practised, it may be tempering the
wind to the shorn lamb, and presupposes an unbiased
consideration of the needs of society, and justice to the users
and the owners of the railway. The antithesis of discrim-
inative rates is equal mileage rates, the imposition of which
would prevent the growth of the country. While perfectly
legitimate discrimination has a prejudicial notion in the
mind of the public because tb ; .s power has been exercised in
an empirical and often arbitrary manner by some of the

1 Charging what the traffic wUl bear on the principle of joint cost,
must be distinguished from charging what the traffic will bear on the
principle of monopoly. Generally the former is in the public interest, the
latter is not so.

130 INDIAN RAILWAYS

traffic managers to strengthen the hold of capitalists and
corporations upon business against public welfare. 1

Discriminations may be classified into those between
commodities, places and persons. Undue discrimination
between commodities is neither so important nor so wide-
spread as the two categories hereafter to be described. All
commodities are classified in the classification lists of
railways, and any departure from them without a justification
is invalid. In certain countries classification is the work of
the government, and no change in it by the railways without
due sanction is permitted. Railways generally are, however,
entitled to levy exceptional or commodity rates as differen-
tiated from class rates, and thus they have a power still left
to discriminate unduly. This species of discrimination is
thus concerned with the relative rates on different commodi-
ties, e.g. between wheat and flour, oil seeds, oil cakes and
oil, gur and refined sugar, etc., or between identical com-
modities if their weight, volume or the distance they are
conveyed be not the same.

A more frequent practice is local discrimination, by which
a charge is imposed which apparently conflicts with the
principle of distance. Local discrimination is, in a way,
based on the difference between fixed and variable expendi-
ture. The traffic manager with a view to utilize more fully
the unused capacity of his plant, is willing to take through
traffic provided it pays its operating expenses and leaves a
small surplus. Local discriminations may then be justifiable
or may not be so, according to the facts of the case.

It is a common complaint of the traders that a railway, in
a war for traffic against its neighbour, lowers its competitive
rates to an unremunerative level, and that in order to recoup
itself for this loss, it raises its rates upon the local traffic.
The railway history reveals that the suspicion of the traders
is well-founded and that such nefarious practices are of

1 Dwelling upon the complex motives hidden behind discriminations,
Marshall explains : " Some discriminations are paternal sacrifices for the
benefit of weak industries, from which the railways hope to reap their
rewards in due time. Some are strategical movements for the capture
of traffic, which otherwise would not come to them ; and these occasionally
have in the background an evil purpose of destroying competitive routes,
in order to strengthen a monopoly." Industry and Trade, p. 481.

COMPETITION & RATES DISCRIMINATION 131

common frequency. A higher charge for the shorter distance
on the face of it seems inequitable. Yet under the stress of
competition conditiDns may so far alter that the charging
of a higher rate to the nearer locality may not only prove
justifiable, but positively beneficial to it and to its customers. 1

Personal discrimination denotes preferential treatment to
one trader to the detriment of his rival or rivals. Of the
three forms of discrimination, this is the most insidious and
demoralizing. It is incompatible with the democratic
and equitable ideal of equality of opportunity to all, and
tends to bring out the element of the friendly patronage of
the railway in commercial success into undue prominence.
It seems as if, under competition, a railway would show
favour to all its traders alike so as to keep their custom and
meet the competition of its rival ; but, in fact, by personal
favouritism the same goal is reached more effectively. It
selects a smart trader with an extensive business and, by
offering him concessional rates, enables him to capture or
" scoop " the business. The trader is not concerned with
absolutely low rates as much as with relatively lower rates
than his rivals, so that he can undersell them. The railway
again wants tonnage, and a single trader, who has been helped
by secret concessions is more reliable for it than a crowd of
traders who are likely to let out the secret of concessions
and haggle for more. 2

The interests of the railway and of the traders are diverse
and opposite, based as they are on the elementary economic
motive of self-interest. It is, therefore, idle to expect
perfectly harmonious relations between the two parties.
In India, the problem of discriminative rates has never
assumed those proportions, multiform, intense and aggres-
sive, which have been characteristic of America. In India,
as in England, personal discrimination has practically had
no place. Complaints of discrimination between com-

1 See the classical oyster case '.n Hadley's Railroad Transportation,
p. 1 1 6. H. G. Brown, Transportation^ Rates and their Regulations,
chap, v, i.

a A remarkable instance of .ow personal discrimination resulted in
fostering a huge monopoly and how that business dictated what rates
shall be levied upon its rival, is given in Tarbell's The History of the
Standard Oil Company, pp. 77-86.

132 INDIAN RAILWAYS

modities have also been few and far between, while those
of local discrimination, either in the shape of special export
or import rates or breach of the short uid long haul clause
have been many and of long standing. But while complaints
may reveal a lack of co-operation and understanding
between the managers and the users of railways and may
point to the urgency of some institution by which a closer
rapprochement between the two parties may be reached,
they do not per se signify bad faith on the part of the
railways.

Competition is the most dynamic force which spurs a
railway on to discriminate, and we have had sufficient proof
of this in the history of Indian railways. 1 It was previously
observed how competition was inconspicuous before 1880.
The Rajputana Malwa Railway brought in the era of
competition between the railways which lasted roughly
till 1916, when they realized the benefits of mutual agree-
ments in the matter of rates, routes and the spheres of
influence. Yet even during the era of competition, the
influence and the control of the State had prevented the
lines from sliding into the demoralizing and destructive
forms of competition. 2 The State has not permitted, so
far as possible, the construction of competitive lines ; it
has laid down, off and on, certain wise saws for the regulation
of competition in healthy channels, and softened its vagaries
by fixing maxima and minima rates. While competition
between the railways themselves is insignificant, that

1 Supra, chap. iv.

a It cannot, however, be maintained that the power of the Government
over the companies is adequate. We have the notable instance of the
E.I. and the G.I. P. railways which waged an intermittent rates war with
each other from 1881 till 1906, and rejected the offer of the Government
to arbitrate between them. So significant was the case, that when cited
before the Acworth Committee, its Chairman was constrained to observe
that " the position seemed rather absurd that Government, the pre-
dominant partner, should look on while the junior partners were disputing."

Infra, chap. vi.

It is also symptomatic of the insufuciency of Government's power over
the railway companies that when the Acworth Committee visited Madras,
the Agent of the South Indian Railway, nine-tenths of the capital of
which is provided by the Government, \ as forbidden by the Directors of
the Company to help the Committee except to give information on points
of fact. Vide Minutes of Evidence, Vol. Ill, para. 6296.

Infra, chap. vi.

COMPETITION & RATES DISCRIMINATION 133

between the railways and the waterways 01 the roadways
is still more so. As a matter of fact, the superiority of the
former over the latter is so decided, that competition can
only exist if -the line be inconveniently laid, if it be con-
gested, or if its charges be excessive.

Competition between the railways and the waterways,
while not intense, has all along existed in some territories,
and has given rise to doubtful railway practice. The case
of the Tirumalavasal port has some striking features about
it and deserves examination. It was cited before the
Acworth Committee as showing the tendency among
railway companies to crush water competition by unfair
means.

Tirumalavasal, a port on the eastern coast of the Madras
Presidency, seems to have competed successfully with the
South Indian Railway for the carriage of rice traffic from the
adjacent districts for export to Colombo by sea, until 1905,
when, as a result of an agreement between the Railway
Company and the British India Steam Navigation Company
which used to call there, the boats of the latter company
ceased to call at the port. The trade of the port, in con-
sequence, was seriously crippled. While it exported 91,629
bags of rice to Colombo in 1903, and 58,418 in 1904, in 1905
its exports were reduced to 7,115. The port revenue showed
the same tendency. 1 Not content with this, the Railway
Company then urged upon the Government the need of
closing the port altogether on the plea that Government had
greater financial stakes in the railway, and that the compe-
tition of the port was robbing it of much revenue. The
leading merchants of Tirumalavasal, on hearing of this,
petitioned the Government against taking such a step.
They stated in great detail that there were great facilities
for husking paddy near the port and that there were special
advantages in the export by sea. 2 They concluded that
they had no confidence that che railway would continue to
charge them the same rates, were the port to be closed. 8
The Government inquired into their grievance and found

1 Report of the Ackworth Committee, Vol. HI, pp. 136, 137.
Ibid., p. 138.
Ibid., p. 138.

134 INDIAN RAILWAYS

that their representations were substantially correct. 1
Although the agreement was allowed to continue, the port
was not closed.

As a result of continuous discontent of the traders,
Government re-examined the situation. The "examination
revealed that the agreement was responsible for the decay
of the port ; that owing to it all rice in the Tan j ore district
had to be sent by rail via Dhanushkodi or Tuticorin ; that
the transport by rail possessed no compensating advantages
in the shape of reduced freight or quicker transit ; in fact,
merchants at Shiyali had to pay two or three annas more
per bag for the transport by rail to Colombo, and that
owing to the shortage of wagons bags of rice were being
detained at the railway stations and stocked there in insecure
sheds or in the open, so that there was considerable delay
in the consignment reaching its destination. 2

The case involves a number of considerations which are,
however, not pertinent to our inquiry. Whatever the merit
of the agreement, it was sanctioned by the State and hence,
although not published for the information of the public,
it was not secret. Nor do we consider the advisability or
otherwise of protecting or encouraging transport by water.
But we are concerned with this fact, that by an agreement
between two transportation agencies, both of them public
carriers, competition, which was beneficial to the public,
was eliminated, and monopoly conditions favourable to the
railway were created and were turned to its peculiar benefit. 3
Surely, the State should have provided that this agreement
could not be turned to public disadvantage.

Another doubtful practice which has resulted from
competition is the imposition of " block rates " upon

1 The Government Officer in his despatch to the Government, stood for
the geographical advantages of the port. He stated that were the port
closed, it would be " an arbitrary interference with the natural trade of the
whole of this tract of the country, the population of which, has adapted
itself to the occupation and means ^pf livelihood rendered available for
them from generations under proper arrangements, the Customs revenue
at the port may well be expected to go beyond half a lac, and I do not
see that any case has been made out for allowing the sea-borne export
trade to be carried by the railway to the*great inconvenience of merchants
and the bulk of the population." Ibid.

a Ibid., p. gi.

* Ibid., Vol. IV, Statement No. 38.

COMPETITION & RATES DISCRIMINATION 135

traffic. 1 While such rates are imposed else*vhere also, the
term is peculiar to India. A block rate is a high rate
imposed by the originating line upon traffic with a view to
having for itself as long a lead as possible and preventing it
from passing off to a rival or foreign route. It thus resolves
itself into a problem of routing traffic and the issue is
whether this diversion of traffic by a higher charge does or
does not involve a breach of the long and short haul rule
and hinder the normal flow of trade.

Far the most notable case of this character is the Broach
case, and it brings out into clear relief the delicate points
involved in the consideration of such a problem. Two
hundred miles to the north of Bombay, near the confluence
of the Narbada with the sea, lies the port of Broach whose
entrepot trade can be traced to immemorial antiquity. The
B.B. and C.I. Railway, which passes by it has not felt to any
significant extent the competition of the indigenous sailing
vessels. In 1908, however, this competition took a more
active form when a Bombay firm started a steamship service
between Bombay and Broach, further calling at Cambay and
Karachi. The steamship rates were lower than those on
the railway and so it happened that goods were brought from
the north to Broach by rail and then shipped on to Bombay
by boat, and vice versa. The mercantile community found
the new service profitable as, in spite of a transhipment, it
was cheaper than the railway service. But the railway
company resented this competition as an encroachment upon
its sphere of influence. A steady diversion of traffic to the
new route was proceeding. The legitimate remedy for it
would have been to lower its rates to the legal minimum to
meet water competition. Broach might have lost the traffic,
but the public might have got cheaper cotton. The railway,
was, however, apprehensive of the effect of such a step upon
its profits, and applied to the Railway Board of the Govern-

1 This practice seems to have mf,Je its appearance with the competition
on Indian lines. In their Despatch No. 55, March, 1890, to the Secretary
of State, Lord Lansdowne's Government stated that " the multiplication
of agencies was an evil to be avoided, and more especially as regards
working companies which were always exposed to the temptation of
trying to divert traffic into their own lines, and to block other lines by
prohibitive rates." Cited by Horace Bell op. cit. p. 53.

136 INDIAN RAILWAYS

ment of India to permit it to raise the classification for
some of the competitive commodities, so that it might levy
sufficiently high rates to render their carriage to and from
Broach by sea unprofitable. 1 It was urged in justification
that Government had greater pecuniary interest in the
railway than in the steamship line. 2 Strangely enough, the
Board assented to the proposal and subsequently on four
out of the ten commodities block rates were levied. 5
Obviously they were levied in order to secure for the railway
the longest lead possible for the incoming and outgoing
traffic and prevent an intermediate station from diverting
this traffic to the sea. The problem of charging a higher
rate on a shorter than a longer distance cropped up, for an
intermediate place was charged an excessive rate as the
result of a change in the classification. In the case of
sugar, for instance, its classification was raised from the
first to the fourth class, thus increasing fourfold the railway's
power of charging. This resulted in the prima facie paradox
that it cost six times as much to carry sugar from
Ahmedabad to Broach, an intermediate station, 106 miles
as from Ahmedabad to Bombay, 310 miles. 4 In other cases
the rates were enhanced by as much as two hundred per
cent. 5

The legality of the procedure was doubtful. Under
contracts with the railway companies, Government are
allowed to fix maxima and minima, but nowhere is it stipu-
lated that " a special high maximum will be permitted for
traffic to and from a particular station/' 6

It became unprofitable for the traders to patronize the
steamship service, in any direction, and it was, therefore,
taken off. The mercantile community then had a petition
sent to the Railway Board through the Government of
Bombay, protesting against their decision. In their reply,
the Railway Board justified their action by arguing that

1 Report of the Acworth Committee, Vol. I, para. 153.
* Report of the Acworth Committee, Vol. Ill, para. 5589.
8 Report of the Acworth Committee, Vol. Ill, para. 5367.

4 Ibid., Vol. Ill, para. 4120.

5 Resolution of Sir Vithaldas Thackersey in the Imperial Legislative
Council, i March, 1912.

6 Vide S. C. Ghose, A Monograph on Indian Railway Rates, p, 190.

COMPETITION & RATES DISCRIMINATION 137

railway administrations were universally sllowed greater
latitude when competing among themselves. 1 Even after
the removal of the rteamship competition, these block rates
were retained by the railway on the added plea that com-
petition by country craft still existed. The public continued
the agitation for the removal of the block rates, 2 and finally
in 1919, after ten years, the Railway Board recanted their
decision and discontinued their sanction to the exceptional
increases in the railway's classification.

The case like the previous one brings into prominence
the need for an impartial commission which could entertain
such complaints, inquire and advise the Government to
decide upon them. 3 The Government, being financially
interested in the railways, the decisions of the Railway
Board might carry a suspicion of one-sidedness ; that in
order to justify its existence and show fair railway earnings,
it might be induced to justify a practice among railways
which ordinarily it would not do. The Broach case might
offer such an example ; for by false analogy it permitted
and justified an unfair and a mischievous practice. The
railway company was certainly entitled to meet the low
rates of the sea route, but not to crush competition by

1 Ibid., Vol. I, para. 153.

2 In 1912 Sir Vithaldas Thackersey brought forward a resolution in
the Imperial Legislative Council requesting the Government to appoint
a committee to inquire, inter aha, into the policy of railway rates and its
effect upon the development of Indian industries and inter-provincial
trade. Commenting upon the Broach case, he expressed wonderment
if the State was justified in killing the port of Broach for its own revenue.
He suggested that both the routes should have been kept open on fair
terms and let the traders choose that which was more convenient to them.
The resolution was not accepted by the Government, the President of
the Railway Board expressing the opinion that a railway should not " be
prevented from competing with sea-borne traffic " ; that the high rates
were necessary for securing sufficient profits to the company ; and finally
that under the existing contractual relations with the company com-
petition and block rates could not be prevented by the Government.
It may be mentioned that the mover of the resolution, in reply, explained
that as regards the power of the Government to prevent the imposition
of the block rates, para. 25 of the contract with the railway, 1907, says
" the Railway Board may at any time require the company to quote
over the railways comprised under the undertaking such rates in respect
of the conveyance of passengers and goods to and from western ports
lying between Karachi and BoJibay inclusive, as may be necessary in
the opinion of the Board to secure the carriage of trade to and from
such ports on equal terms."

8 Report of the Indian Industrial Commission, chap. xix.

138 INDIAN RAILWAYS

unfair manipu'ation of its rates. While the Railway Board
justified the action of the railway, it did not cite any instance
in which the protective measure adopted by a railway
against water competition took the form not of reducing
rates within its ordinary powers of charge, but of imposing
block rates upon the railway route before the commodities
reached the sea. What the imposition of block rates
amounted to was that a public highway could levy upon
one trader four times the tolls it levied upon another under
identical circumstances, simply because the former preferred
to forward his goods to the destination partly by another
route which was cheaper. 1 The Railway Board had really
no legitimate grounds upon which to base its justification
for an increase of rates so as to divert traffic from reaching a
port. 2 The intermediate rates were again prohibitory and
exorbitant. It is noticeable that even after the steamship
service was " killed " and the need of block rates had
disappeared, the rates were retained in spite of public
protests. In the situation the public had good grounds
for their suspicion that the railway had removed a rival
carrier from the field to create monopoly conditions on the
strength of which it could levy a heavy toll upon certain
articles ; although the natural flow of the country's trade
was thereby restricted. By preventing the carriage of these
articles the block rates acted like tariffs between the port of
Broach and the communities which lay northward.

The steamship company is willing to start the service
again provided it encounters fair competition of the railway.
It is apprehensive of block rates against which it acknow-
ledges its inability to compete. 3 The Railway Board
has failed to enunciate any clear policy so that western India
is deprived of an alternative means of transportation.

The case of the Buckingham Canal affords many parallel
features to the one just described. While no block rates
were involved here, it reveals that the Indian railways possess
practically an unchecked power in meeting competition of
other modes of conveyance, and proves the need of a legally

1 Report of the Acworth Committee, Vol." Ill, para. 5590.
9 Report of the Acworth Committee Vol. Ill, para. 6318.
9 Ibid., para. 5327.

COMPETITION & RATES DISCRIMINATION 139

constituted body which would safeguard tlie interests of
roadways and waterways, and introduce co-operation and co-
ordination among all the public carriers. The Buckingham
Canal was constructed at a cost of Rs.86, 14,000 and provided
cheap and easy communication between the town of Madras
and five districts, including the important towns of Cocanada,
Bezwada, Masulipatam, Ongole and Nellore. It was an
efficient canal for transport purposes and was commonly
used by boats of three feet draught and of as much as
forty tons burden, and had an increasing trade in provisions,
salt, food grains, firewood, building materials, coal, etc. 1
Since the opening of the railway, its long distance traffic
had materially declined, so that although in ordinary years
traffic upon it amounted to twelve and a half million tons,
its revenue was insufficient to meet its working expenses,
and a deficit of about Rs.2o,ooo was disclosed. 2 It, however,
carried considerable quantities of salt and firewood, and was
especially valuable in bad seasons as it connected the two
fertile deltas in the north with the poorer country further
south. The decline in its traffic was due to the competition
of the railway which it was alleged was not fair. The details
of the case are meagre. It was admitted by the railway
that in order to divert traffic from the canal it put in force
such low exceptional rates as to leave it a very small margin
of profit. The traders took the view that this was another
instance of the anxiety of the railways to kill competition
of the waterways so as to be free to levy monopolistic rates.
They were able to point out that after the worsting of the
canal, the railway had raised its charges, so that " to-day,
rice, chillies and firewood have to pay heavier rates than
when competition by the canal existed." 3

With the scanty materials at our disposal, it cannot be
charged that the railway deliberately lowered its rates to
kill competition by the canal. The subject of railway
versus canal competition is still in a controversial stage, and
we cannot say for certain whether traffic decreased on the
canal because of deflect'on of rates by the railway, or

1 Report of the Acworth Committee, Vol. III. p. 91, note 2.

9 Imperial Gazetteer of India, Vol. IX, pp. 32, 33.

* Report of the Acworth Committee, Vol. IV, Statement No. 38

T40 INDIAN RAILWAYS

because it was the more efficient mode of transport. If the
latter, the decay of the canal was, after all, beneficial to the
community. But the railway cannot be permitted to
arrogate to itself the powers of a public functionary and
decide as to which one of the two means of conveyance was
for the public benefit. Anyway, all these cases lend them-
selves suitably to an inquiry. The Acworth Committee
expressed their opinion that the Communications Depart-
ment suggested by them would be a fit body to undertake
inquiries of this nature. 1 Further, they were not favourably
impressed by the defence of the railway companies in the
three cases above mentioned involving competition between
railways and waterways and stated " the Broach case,
though the most surprising, is not the only instance where
railway companies have been accused, in dealing with water
competition, of going or attempting to go to a length which
seems to us indefensible." 2

Block rates are not practised by the railways against
water carriers only but are imposed against one another as
well. For the motive underlying block rates is simple and
easily explicable : it is but an expression of the desire of a
railway to carry traffic as far as possible upon its own line
and to hand it over to another when it can carry no farther.
This is but fair, for a route is not unreasonable because it is
proposed to hand over to the receiving company traffic only
a few miles distant from its destination, although such
company could receive it at a point further distant from its
destination. It is clear that were there no alternative
competing routes, the problem would not arise. Were the
lines belonging to the State worked as a unified undertaking,
the problem would cease to exist. If the railway carried
the traffic to its destination according to the direction of the
trader or by the most convenient route, little difficulty
would be encountered. The existence of block rates
signifies, however, that this motive, when translated into
action, takes forms which are not always justifiable. Block
rates in practice are the maximum rates permissible with

1 The Indian Industrial Commission observed that the absence of a
representative of waterways had enabled railways to prevent attention
being bestowed on them. Report, chap. xix.

a Report of the Acworth Committee, Vol. I, para. 155.

COMPETITION & RATES DISCRIMINATION 141

oft-times a high terminal charge levied genere lly at junction
points for the artificial diversion of competitive traffic.
Their peculiarity in India is that as between railways they
are imposed to direct traffic to the port served by one rail-
way as against the port served by its rival.

To illustrate : two railways diverge from Nagpur, the
Bengal Nagpur towards the east to feed the port of Calcutta,
and the Great Indian Peninsula wending its way westward
to Bombay. Grain is produced on the Bengal Nagpur and
is marketable in both the directions ; but if it were to be
despatched to Bombay, the lead of the Bombay Nagpur
would be shorter than if it were marketed to Calcutta.
Apparently the traders prefer the former route and by that
route would the grain go under fair competitive conditions. 1
But the Bengal Nagpur, intending to carry it to its own port,
Calcutta, so manipulates its rates that the trader has the
alternative of either sending his goods to Calcutta or paying
high mileage rates to Bombay. It imposes block rates on
grain to Bombay which consist of the maximum rate plus
a terminal charge of eight pies per maund ; while for the
identical service on its own route, in spite of two terminal
services, no terminal charge is levied and the rate is according
to the ordinary schedule. 2

The rates for grain from two stations, Drug and Raipur,
on the B.N. line to Nagpur for Bombay and to Calcutta
respectively, work out as follows :

To NAGPUR JUNCTION FOR BOMBAY

Total rate Per maund
Miles per maund per mile

As. P. Pie.

Drug .... 165 53 -38

Raipur . . . . 188 5 n -38

To CALCUTTA

Drug .... 537 79 '*8

Raipur . . . . 514 8 3 -19

1 This was admitted by the representative of the Bengal Nagpur
Railway before the Acworth Committee, para. 4047.

a S. C. Ghose, A Monograph on Indian Railway Rates, p. 211. In India
the imposition of terminal charges is absolutely left to the discretion of
railway officials, and no sanction of the Railway Board is requisite
therefor. If a complaint were made against the fairness of any terminal
charge, the Governor-General might appoint a Commission to inquire into it.

142 INDIAN RAILWAYS

It will be observed that the rates on grain traffic to
Bombay are charged on a higher basis than to Calcutta ;
that they are further increased by the imposition of the
terminal charges from which the traffic to Calcutta is
exempted ; and that although Raipur is nearer Calcutta
and probably offers a larger traffic to the railway than Drug
it has to pay a higher rate. The railway levies a higher
charge for a smaller distance than for a greater under
substantially similar circumstances. The competition of
the G.I. P. Railway is said to be responsible for it, but the
competition, to justify the practice, must be material and
substantial, not conjectured. If it be explained that the
railway acts upon the principle " Why sacrifice revenue
when you can get a higher rate ? " l then it implies that the
principle followed by the railway is to charge the maximum
that the traffic will bear irrespective of social considerations.

Let us analyse the case further. It appears that in spite
of the block rates, the grain traffic continues to go to
Bombay by reason of the cheaper steamship freight rates
which are charged from it than from Calcutta. The
maximum charge, plus the terminal, which the Bengal
Nagpur levies then constitutes a veritable tax upon trade.
India, having no monopoly of grain, these rates are paid,
not by the foreign consumer, but by the Indian agriculturist.
On the other hand, were the traffic successfully diverted to
Calcutta, it would mean that the traders were compelled
to send their goods, not by the route which gave them the
easiest access to the market, but by the route which brought
the greatest profit to the railway which happened to pass
by their door. 2

1 Ibid., p. 213.

9 It is instructive to find that the Interstate Commerce Commission in
the well-known Milwaukee case, 1909, enunciated a clear line of guidance,
although the railways there are private property. It remarked that the
railway company " cannot force its services upon a shipper or insist upon
carrying his shipment to one market when he desires to reach another
market. It has no right to insist chat a shipment shall go to the end
of its rails if the shipper desires it to be diverted at an intermediate point
to another market off its rails, nor may the carrier accomplish these
results indirectly by an unreasonable adjustment of its rate schedules
with that end in view."

Vide H. G. Brown, Transportation Rates and their Regulation, chap, x,

$ 2-

COMPETITION & RATES DISCRIMINATION 143

This is not an exceptional instance wher? excessive or
prohibitive rates are levied by railways. So far as they are
within the maxima and minima fixed by the Government,
they are not illegal. 1 But that is not synonymous to saying
that they are reasonable, or, in the public interest. The
State ought to see that competition between public carriers,
if at all permitted, takes place on a plane consistent with
public morality. The stronger and more compelling is the
duty of the State to see to this where, as in India, the rail-
ways are its own property. The practice of block rates does
not savour of healthy emulation ; it is more like a scramble
of managing companies companies whose profits are
assured, but whose interests are divergent to capture the
same traffic. Whichever company gains the State can be
no gainer, and it is not inconceivable that, acting like a
tariff wall the block rates restrict the normal flow of traffic
in the country. The practice is objectionable. The need
for a good law of undue preference to stop it clearly emerges
into view.

The problem which has exercised the public mind more
intensely is the alleged policy of the railways of giving
specially favourable rates to the export and import traffic.
" The inequitable working of the railway rates," deplored
the United Provinces Chamber of Commerce, " has been
the greatest grievance of the Indian industries against the
railway policy. The rates are so framed as to favour the
import of manufactured goods into the country and the
export of raw materials out of it." 2 This problem is germane
to the problem of block rates, for it is alleged that one of the
motives of the lines underlying the imposition of block rates
is to encourage export and import traffic on their own lines.
This class of traffic is particularly remunerative as it gives
them a long lead with a heavy load. It is contended that
in doing so the interests of the local traffic are neglected, and
the concessions for the carnage of foreign merchandise

1 The British Railway and Canal Traffic Act, 1894, required a railwa)
company to justify any increase in rates, and the mere fact of these rates
being within the prescribed limits was not sufficient. In Germany and
in Austria, all exceptional rates " must bear the approval of the Govern-
ment as a public certificate of good moral character."

a Report of the AcworthjCommittee, Vol. IV, p. 225.

144 INDIAN RAILWAYS

enables it to compete successfully with indigenous products.
The indigenous industries, being infantile, are by their very
nature unable to take advantage of corcessional rates or to
stand the competition of foreign articles. In short, that
this practice involves undue discrimination against local
industries, which is prejudicial to the industrial develop-
ment of the country and results in a breach of the short and
long haul rule. Considerations of a diverse character enter
into an understanding of this problem. Again, for lack of
judicial decision, our task must be limited to unravelling
the cases and balancing relevant factors.

The low industrial level of the country and the protection-
ist proclivities of the people have aggravated the situation
and turned it into a festering sore. The absence of advisory
councils had widened the breach between the railway
management and the public and a lack of mutual under-
standing had been the basis of many a complaint of the
trader. But more potent than all the absence of an impartial
body before which the sceptical trader could go and lay his
case of unfair treatment by the railway, had prevented
dissemination of the methods of railway rating among the
public, and had resulted in the use of arbitrary power by
the railways. Such a Commission is provided for by the
Railways Act, but owing to the " cumbrous and inept "
procedure of setting it up, it has never been appointed.
Such a body would have evolved from its own experience a
set of principles in harmony with the economic relations and
tendencies of the country and would have achieved a closer
rapprochement between the trader and the railway.

Starting from the advent of railways in the country,
two distinct streams of traffic have been discernible : the
raw materials making their way to the ports for export, and
the imported manufactures going from the ports into the
interior. 1 This has been by far the most important current
of traffic in the country, and the situation is substantially
true to-day. Lord Dalhousie, the father of Indian railways,
had correctly visualized the need of the country, and it is
clear from his minute that he desired to develop the exports

1 Report of the Indian Industrial Commission (Cd. 1765), chap. xix.

COMPETITION & RATES DISCRIMINATION 145

of raw materials and the imports of manufactures. This
was highly beneficial to the country, and the policy was
sedulously fostered ; n later times. The railways also found
this policy advantageous as, in those days when they were
hungering for traffic it gave them a steady stream of heavy
and long-distance traffic. Thus arose the formation of
special rates for this s6rt of traffic.

It is true that a large volume of traffic carried over a great
distance is more economical than local traffic consigned in
small quantities for a number of short-distance stations.
Therefore a railway ordinarily wishes to extend its long-
distance traffic. But if this is to be carried, it must be
offered special rates. For it stands to reason that a con-
signment carried a thousand miles cannot bear the same
mileage charge as another commodity destined for ten
miles. The long-distance traffic hence must be treated like
cheap and bulky articles which cannot bear a high rate.
From the point of view of the difference between fixed and
variable expenditure, any rate on through traffic which pays
more than the operating expenses is profitable. 1 The
export and import traffic in India was of this description.
Competition between the railways feeding the various ports
again led to a decrease in rates for this class. This tendency
got an impetus from the competition of boats on the Ganges
and the Brahmaputra as well as those engaged in the coast-
wise trade. 2

The gradual transformation which is coming over the
industrial life of the people has undoubtedly been accelerated
by the railway. The cheap carriage of raw materials,
labour, and machinery and the possibility of extensive
distribution of the manufactured products have resulted in
the establishment of factories and workshops ; and articles
which were largely imported a short time ago are now
produced in the country itself. The economic life and
needs of the people have changed. It is no wonder then

1 But the difference between a car-load and less than a car-load rate
must be proportional to costs. Even this cannot be observed as a universal
rule ; for car-load rates may lead to create or foster monopolies much
against the interests of society.

3 Report of the Industrial Commission.

K

146 INDIAN RAILWAYS

that the old pclicy of the railways has clashed with the new
interests of the people. It is an accepted view now that the
unconsidered policy of encouraging experts of raw materials
and imports of manufactured products is detrimental to the
interests of the country ; since on the one hand the home
manufactories except at the port towns are not able to,
obtain the raw materials which they need on terms relatively
as favourable as those which the exports receive ; and on
the other the preferential treatment to imported manufac-
tures enables them to compete successfully with indigenous
wares. 1 In both ways the progress of the country is retarded.
The railways must shift their angle of vision so as to fall
into line with the economic and commercial needs of the
people. It is pointed out that while railways must be
worked as commercial undertakings, it must not be over-
looked that they are an important organ of national life
and must subserve rather than dominate its interests.

There is the other side which cannot be neglected. It
may be stated ab initio that special rates upon goods
imported or exported as against rates upon goods destined
for home consumption do not exist in India. Thus cotton
to Bombay for consumption in the local mills is given the
same rates as cotton carried to Bombay for export. It
must be reiterated in judging the complaints of the traders,
that a great many preferences are given everywhere by rail-
ways, for instance to a man who gives tens of tons over
another who gives a few tons ; to a man whose consignment
is a car-load or train-load as against another whose consign-
ment is less ; or to a man whose consignment is properly
packed as against another whose consignment does not meet
this stipulation. These preferences cannot be termed undue
or arbitrary so long as they are based on the difference in
the relative costs of handling, are published, and are avail-

1 When asked to give an instance of the manner in which railways had
endeavoured to encourage traffic to and from the ports rather than internal
traffic, Mr. Ghose explained to the Acworth Committee, that when a new
line was opened, special rates for the staple produce of the district were
quoted to the ports, and similarly for return traffic from the ports. He
admitted that if attention was drawn to the inequalities arising as regards
internal traffic, they were sometimes adjusted, but that complaints were
not dealt with in all the cases. Para. 4444, Vol. III.

COMPETITION & RATES DISCRIMINATION 147

able to any consignor who fulfils the necessary requirements.
Whether preference is due or undue is a point not of law,
but of fact : it hang^ upon the merit of the individual case.

The Indian -law of undue preference, although modelled
on the British, is not so definite in scope. The Railways
Act, 1890, Section 42 (2) says : " A railway administration
shall not make or give any undue or unreasonable preference
or advantage to or in favour of any particular person or
railway administration, or any particular description of
traffic, to any undue or unreasonable prejudice or disad-
vantage in any respect whatsoever/ 1 And further Section
43 reads : " Whenever it is shown that a railway adminis-
tration charges one trader or class of traders or the traders
in any local area lower rates for the same or similar animals
or goods, or lower rates for the same or similar services, than
it charges to other traders or classes of traders, or to the
traders in another local area, the burden of proving that
such local charge does not amount to an undue preference,
shall lie on the railway administration. ... In deciding
whether a lower charge does or does not amount to an undue
preference, the Commissioners may, so far as they think
reasonable, in addition to any other consideration affecting
the case, take into consideration whether such lower charge
is necessary for the purpose of securing, in the interests of
the public, the traffic in respect of which it is made." l

The match industry in India is in an infant stage, and the
special rates which, it is contended, are given to foreign
imported matches, work against its development. Anim-
adverting on the railway policy, Sir Vithaldas Thackersey
alleged that as a rule matches from Calcutta, Bombay,
Karachi and Madras were quoted favourable rates, while
match factories in the interior had to pay higher rates. 2
The North-Western Railway, for instance, quoted special
mileage rates to imported matches from Karachi, while
matches from Ahmedabad, where there was a match factory,
were carried at higher rates, being placed in a higher classi-

1 Vide Appendix.

3 Proceedings of the Governor General's Legislative Council, 1912.
The Indian law does not provide against preferential rates offered to foreign
goods as does its British model in clause 2, section 27 of the Act of 1888.

148 INDIAN RAILWAYS

fication. The Bombay Baroda and Central India Railway
gave a special rate below the second class to imported matches
from Bombay to Delhi, while matcnes from Ahmedabad for
the same destination were charged fourth-class rates. It is
doubtful if foreign matches required concessional rates.
The distance from Ahmedabad to Delhi is shorter by about
three hundred miles than that from Bombay ; yet the charge
from both these places was the same, namely, Rs.2.n.n.
per maund. The rates seemed to have been fixed in inverse
proportion to the natural advantages of these cities appar-
ently with a view to equalize commercial conditions. The
distance factor was ignored. Now, while it is not true that
costs vary in exact proportion to the distance, it is true that
the greater the distance, the greater the costs of carriage.
The railway, in defence, pleaded that the quantity carried
from Bombay was greater than that available from
Ahmedabad ; and secondly, that the Bombay rate was
decided by the East Indian Railway rate to Calcutta a
rate which was depressed because of competition by river
transport. The Bombay rate was thus a resultant of
competitive forces which did not exist at Ahmedabad. 1

Two distinct problems were involved in the case. Were
the circumstances such as to justify the charging of the
same rates to two localities unequally situated ? No
geographical advantages can per se be held sacrosanct ; for
the aim of all transportation is the annihilation of distance.
Maintenance of original differences of situation would imply
equal mileage rates, which would fortify the monopoly of
the situation to the detriment of the commerce of the country.
On the other hand, a railway cannot be allowed to override
differences of distance arbitrarily, for that would be tanta-
mount to governmental power. It would then be able to
discriminate unduly and decide where a particular industry
should be concentrated. The second problem was whether
the lower mileage charge accorded to imported matches
from Bombay was necessary in the interests of the public.
This is a wider consideration and is founded on the fact that
the railway, unlike a merchant, has public obligations and

1 Report of the Acworth Committee, Vol. III., para. 5580.

COMPETITION & RATES DISCRIMINATION 149

hence cannot treat its charges merely as a commercial
question.

The merchants of Ahmedabad complained, and after ten
years of agitation, the Ahmedabad rate was reduced to
Rs.2-2-n per maund, while subsequently the Bombay rate
was increased to Rs. 3-7-2 per maund. During this long
period, it was complained, the geographical advantage
of Ahmedabad was discounted and its infant industry
suffered a temporary set-back. The preferential rate, it was
complained, was tantamount to giving " a bounty to the
foreign manufacturer equivalent to the whole cost of
carriage between Bombay and Ahmedabad." Special rates
for matches from the ports still exist. 1

There is again the oft-criticized case of sugar. Imported
refined sugar conveyed from Bombay to Cawnpore, 840
miles, was charged Rs.o-i3-6 per maund, while indigenous
sugar consigned from Cawnpore to Akola, 649 miles, was
charged at the rate of Rs. 1-2-4 P er maund. Refined sugar,
mostly imported, consigned from Bombay to Barsi was
charged Rs.o-6-o ; while jaggery, which is inferior and rough
indigenous sugar, was charged Rs.o-g-g or fifty per cent
more from Barsi to Bombay. 2 It was deprecated that while
the Government and the people were anxious to revive the
sugar industry, and were spending vast sums for that
purpose, the railways were imposing upon it a heavier
burden and thus retarding its growth. Not only were
lower rates offered to foreign sugar as against home-made
sugar, but even as against gur or jaggery, a much less
valuable product and largely consumed by the impecunious
masses.

It would be fallacious to argue that the industry is

1 Ibid., 5514. A general consideration may here be stated. If the local
industry be inefficiently managed or unsuitably located, any concession
to it in rates is merely putting a burden upon the railway and the public,
and it would then be beneficial to i^iport the goods. Again, it may be
that by co-operation or by better organization the local producers of the
goods can be made to despatch large and regular consignments and so to
receive from the railway the same favourable terms which foreign con-
signments receive. Regarding British experience in the matter of prefer-
ential rates, vide the report of the Board of Agriculture, 1906 (Cd. 2959).

9 Speech of R. B. Mudholkar in the Imperial Legislative Council,
March, 1912.

150 INDIAN RAILWAYS

decaying solely owing to the policy of railway charges. There
were some important factors which combined to make sugar
production in India an unprofitable enterprise. That is not
germane to our inquiry, we are concerned to find if prefer-
ential railway rates were offered to foreign sugar, and if
under the circumstances they were reasonable and in the
public interest. That the sugar industry has fallen upon
evil days is indisputable. Vasco da Gama, in the fifteenth
century, remarked how a flourishing trade was carried on in
Indian sugar from Calicut to Europe. Not long ago, the
sugar of Kotchandpur, Keshabpur, and Manickgunj in
Bengal, and of Kashi was well known. Between 1884-5
and 1913-14, the imports of foreign, bounty-fed sugar
increased from 79,638 tons, valued at 2 crores, to 890,869
tons valued at 15 crores. Paripassu the area of land under
the sugar cane declined from 3,100,232 acres in 1891-2 to
2,410,141 in ign-12. 1 The sugar industry was thus fast
declining and no causal relation could be traced between it
and the railway rates. But it is striking that the large
imports of Java sugar coincided with the lower rates accorded
to it from the ports of Calcutta and Bombay in 1904, and
still further in 1905, following upon competitive rate-cutting
by the E.I. and the G.I.P. railways. 2

It is manifest that if lower mileage rates are offered to
sugar from Calcutta which is foreign, than to the home sugar
from Cawnpore, say to an intermediate station, Cawnpore
sugar would not be able to stand in competition with foreign
sugar and it would be ousted from its market. And herein
lies the irony of the situation : it is the weaker members of
the community who stand in need of concessional rates and
yet it is the more powerful who get them. In the present
case, it may be pleaded in defence, that the imported
sugar was accorded lower rates because it was heavy and
long-distance traffic, and such traffic costs less to handle
than many small consignments destined for local stations. 8

1 Vide Resolution of Rai Bahadur Sita Nath Ray on the Indian Sugar
Industry in the Imperial Legislative Council, 17 March, 1915.

* Report of the Indian Industrial Commission, chap. xix.

* Cf. The famous Southampton case in England, E. A. Pratt, Railways
and their Rates , p. 112, H. W. Disney, The Law of Carriage by Railway,
pp. 285, 286.

COMPETITION & RATES DISCRIMINATION 151

But this was not so in the present case. Special rates to
imported sugar were quoted not on wagon-loads, but on
actual weight, so that It could be carried to stations which
could not afford- a wagon-load. For instance, while special
rates for sugar in small lots were given from Karachi to
certain stations, no such rates were available from Amritsar
or Gurdaspur where there were sugar works. Again, foreign
sugar was conveyed at railway risk, so that in many cases
these rates were lower for a like distance than those charged
to indigenous sugar even in wagon-loads and at owner's risk. 1
In the case of a country like India where the exports are
in heavy and bulky commodities, and the imports in light
and small ones, it is recognized that the rates on imports
may be exceptionally low, so as to induce the movement of
traffic in the direction of empty cars, provided these rates
covered the costs incidental to the actual movement of
the traffic. This is a salutary principle inasmuch as by
equalizing the flow of traffic there is a greater utilization of
the rolling-stock with the concurrent elimination of non-
paying car movement. In fact, it is a good criterion of
efficient management. This is an important consideration ;
but it loses its force in the case of Calcutta because in con-
sequence of the coal traffic the flow of empty cars is from
the north and the north-west towards Bengal. It might, then,
have proved profitable to the railways to quote specially
low rates for sugar from the United Provinces and Bihar to
Calcutta. Lower rates to imported sugar cannot then be
justified on the basis of a difference in the cost of service.
Further, there is the economic consideration whether the
reduction in rates on imported sugar benefits the ultimate
consumer, or is appropriated by the manufacturer or the
middleman ; and whether any of these persons really need
the concession. The prime cost of sugar in Java was calcu-
lated roughly at Rs. 5-8-0 per maund, while its selling price
in Calcutta was Rs. 11-4-0. The steamer freight was in-
considerable. It seems then, that rates on imported sugar
were lowered not because the article was in need of them,
but because of railway competition as admitted by the
1 S. C. Ghose, op cit. p. 230.

152 INDIAN RAILWAYS

railways themselves. 1 " Even if the rates for Java sugar
were maximum rates, the railways would not have lost the
traffic, but the profits of the Java producers would have
been less." This step would have proved equally beneficial
to the railways, the home industry and the State.

Finally, there is herein involved the consideration of the
State policy. It is a controversial point as to how far
should fiscal motives be permitted to influence the policy of
rates. It is generally preferable to keep the railway business
aloof from extraneous implications, for it is the experience
of many democratic countries that politics corrupt the rail-
ways and the railways corrupt politics. But this
generalization cannot imply that railways could be per-
mitted to pursue their policy irrespective of its effect upon
the broader policy of the community. 2 Reverting to our
case, the State in India had resolved to protect the infant
sugar industry and with that aim had levied a duty of five
per cent upon all imports of that article and a higher one
upon bounty-fed sugar. The policy of the State was to
shut off foreign sugar from the home markets to some extent
so that the indigenous industry might receive some protec-
tion. By offering preferential rates to foreign sugar then,
the railways were obviously pursuing a line of action which
was short-sighted and contravened the intention of the
legislature.

Gur, as compared with sugar, is a semi-manufactured
competitive article and its market price was less. It was
available in large loads and the risk of its carriage was not
higher. It is not contended by the railway that sufficiently
strong competition existed to justify the discriminative rate

1 Ibid.

The Agent of the G.I. P. Railway testified before the Acworth Com-
mittee that the rates from Nagpur were determined by the B.N. Railway
competition, and if that railway would agree to put up their rates to
Calcutta, the G.I.P. Railway would do so for the Bombay rates.

a In accordance with section 43 (2) ^f the Indian Railways Act, a railway
must not charge a lower rate to a traffic unless the acquirement of that
traffic be also in the interest of the public.

" Then the question of unequal preferential treatment really resolves

itself into the old question of protection v. free trade ? Yes, it does, the

railway company acting the part of a pfovidence, sometimes beneficent

and sometime maleficent." Report of the Select Committee on Railways

n Great Britain, 1882, para 392.

COMPETITION & RATES DISCRIMINATION 153

from Barsi to Bombay. It should have been offered lower
rates, for in general the greater the value of the article, the
greater the rate should be. If the lower rate for the more
valuable article'was reasonable to the carrier, the higher rate
for the less valuable article could not have been reasonable
to the trader. 1 An equal charge with sugar must have
restricted its movement and proved a hardship to the poor
consumer and a handicap to the manufacturer of refined
sugar in the country.

Closely related to the above problem and in many cases
incidental to it, is that of charging a higher or an equal rate
for a shorter distance. If the first be justified then this
practice, which is involved in the first, stands also unim-
peached. A breach, however, of the long and short haul
principle is prima facie evidence of undue discrimination,
because distance, expressing as it does a difference in the cost
of service, is regarded as a factor in rate making. If rates
do not increase with the distance travelled, it should be
incumbent upon the railway to justify the departure. In
actual practice, discrimination in favour of the longer
distance may be necessitated in the interest of the inter-
mediate station. Competition, direction of traffic, gradients
and a multitude of other factors must enter into its considera-
tion. It may be revealed that were lower rates not offered
to the longer-distanced traffic, it would be lost to the line
and the result would be that this loss would have either to
be recouped from the intermediate traffic in the shape of
higher rates, or else the service would have to be taken off
altogether. 2

The only line of guidance on this specific subject is found
in the Resolution of the Government of India, 1887, which
said, " The question whether the charging of a lower or an
equal rate for a longer than for a shorter distance does or
does not constitute ' undue preference ' appears to be at

1 The possibility of divergence from this rule must be recognized. The
Interstate Commerce Commission once permitted a lower charge upon
finished and, therefore, more valuable furniture than upon unfinished.
They were satisfied that the former was better to load and gave a better
tonnage. Vide H. G. Brown, transportation Rates and their Regulation,
chap. xi.

8 Vide Hadley, Railroad Transportation, p. 116.

154 INDIAN RAILWAYS

present unsettled in England, although the weight of the
legal authority is very much against the practice, and it
seems to be at least settled that the charging by a railway
company of a lower or even an equal rate for a longer than
for a shorter distance does constitute prima facie evidence
of undue preference." l

Cotton from Chandausi to Cawnpore, 236 miles, was
charged RS.O.S.O. per maund ; to Delhi, 128 miles, it was
charged Rs.o.6.7., i.e., a nearer locality was charged at a
higher rate. 2 Both Cawnpore and Delhi are manufacturing
centres and in need of raw material cotton. It was argued
that the preference was given because of the influence of
the European Chamber of Commerce at Cawnpore. If it
be so, it would be a case of local discrimination intermixed
with and based upon personal discrimination. It may be that
the railway was able to show, in justification, either stronger
competition or lower costs of carriage from Cawnpore, or
social considerations. On the other hand, the two towns
being in competition, the offer of a lower rate to Cawnpore
would be a departure from the long and short haul rule,
would ignore the geographical advantage of Delhi, and place
its traders in an unfavourable commercial position. This the
railway has no right to do without extenuating circumstances.
It is recorded in fact, that this discriminative treatment
resulted in the closing down of some cotton mills at Delhi. 3

The charge for leather per maund from Cawnpore to
Howrah, 633 miles, was Rs.o.5.3. ; while, from Delhi to
Cawnpore, 271 miles, the charge was Rs.o.6.4. per maund
even for one hundred maund lots. If the difference in rates

1 The rule in the Indian Railways General Classification of Goods
says : " Provided it be specially notified that the Differential Rule as to
distance applies, when goods of the same description and booked in the
same direction are charged at different rates according to the distance,
the charge for the lesser distance shall not exceed the charge for the
greater." The rule is thus negative and is not applicable unless notified.

In the United States the prohibition of this practice is embodied in
the 4th section of the Interstate Commerce Law. In France, it is known
as the " Clause des stations de'nomme'es," and in Germany, the " Princip der
hintergelegenen Stationen . ' ' Exceptions to this are, however, allowed every-
where to meet important factors like competition or long-distance traffic.

3 Proceedings of the Imperial Legislative Council, 1912.

* State versus Company Railway Management of Indian Railways, by
an Ex-Railway Official, 1916. See also the report of the Acworth
Committee, para. 6028, Vol. III.

COMPETITION & RATES DISCRIMINATION 155

was based on the cost of service the railwry did not show
it. 1 Cawnpore, which is a centre for the leather industry,
suffered because it3 own leather was carried away by cheap
rates, while it 'was handicapped in meeting its requirements
by higher railway rates. " What I want to point out is,"
added the witness, " that the same facilities were not
granted to Cawnpore, at the same time, as were allowed to
Calcutta Port, in the way of low rates for 360 maund lots.
The whole idea was to encourage traffic to the ports." This
is a case which the traders would have brought before a
tribunal or a commission for decision, were such a one
existing, for it affords a clear instance of the breach of the
long and short haul rule. The distance yard-stick was
unreasonably laid aside. While, all this time the United
Provinces Government were complaining of the difficulties
of the local industries of Cawnpore, the railways were taking
away from Cawnpore and the neighbourhood the raw
materials which the local industries badly required. This
grievance was substantiated by the Director of Industries
in the United Provinces, who stated in his report that the
export of hides and skins was telling upon the local industry
which had lost all share even in the preliminary process of
dressing the goods exported. 2

The quotation of more favourable rates from Cawnpore
than to it had manifestly the effect of denuding its supplies
of raw materials and restricting its obtaining them from
outside. The complaint of the local Government implied
at once a denunciation of the rates policy of the railway
coupled with its lack of power over it. The Government
cannot be charged with harbouring an undue solicitude for
the well-being of the commercial community. Even an
impartial commission, after carefully sifting the evidence,
has stated it as its opinion that " the grant of port rates
nearly fifty per cent less than the internal rates, has cer-

1 Report of the Acworth Committee, Vol. Ill, para. 4502.

9 Ibid., paras 4444 and 4490.

See also Ghose, Lectures on Indian Railway Economics, Part III, p. 36.
He explains that the reduced rates to the ports, for wheat, sugar, hides,
etc., practically amounted to a " subsidy paid by the Indian Government
to foreign manufacturers," and further, that they were " admittedly
opposed " to the interests of the indigenous industries.

156 INDIAN RAILWAYS

tainly discouraged Indian tanning, and enabled certain
foreign industrialists to obtain a hold on a class of raw
material of which India possesses a partial monopoly." l
An unduly discriminative rate creates an inequality and is
incompatible with the ordinary commercial principle of
of what we may style the survival of the most efficient. The
charging of a higher rate for a short distance was unfair
since under similar circumstances it created an undue
inequality and since it conflicted with the aims of the State.
Features of a slightly different nature surrounded the
oil case. The rate for oil seeds from Allahabad to Calcutta
was Rs.o-5-3 P er niaund ; while that for oil cakes from Cal-
cutta to Allahabad was Rs. 0-9-1, or a little less than double.
The distance in both the cases was the same ; both the
consignments were almost equally convenient to handle ;
their values were, however, different. Oil cakes are merely
the refuse when oil seeds are denuded of their oil. The
result of this system of charging was that an article was
rated lower than one of its less valuable by-products. A
particular factor may explain it. The location of important
coal mines in Bengal is responsible for a large flow of empty
wagons from the north and the north-west towards it ;
and this circumstance may be pleaded as a justification
for the lower rates for the carriage of oil seeds. On the other
hand, it is suggested that a cargo of oil seeds carried to Cal-
cutta and pressed there would produce a definite amount
of oil cakes which could be back-loaded at a lower charge
than that for carrying oil seeds from Allahabad to Calcutta.
Oil cakes again, are sorely needed in the country as fodder
for cattle, it being pronounced that the export of oil seeds
and oil cakes from the country is nothing less than the
export of the soil's fertility. The low rates upon oil seeds
to the ports, it is thus argued, are detrimental to the interests
of the country. 2

1 Report of the Indian Industrial Commission, chap. xix.

2 The wheat milling industry affords a parallel. The low rates for wheat
to the ports prevents the establishment of flour mills near the locality
where it is grown, and leads to a congestion of mills at the ports with
considerable running back of empty cars. . For other alleged irregularities
of the railways, see Minutes of Evidence, Indian Industrial Commission,
Vol. IV, No. 321.

COMPETITION & RATES DISCRIMINATION 157

The alleged malpractices of the railways in India may
then be abbreviated into preference to import and export
traffic to the prejudice of local traffic and industries. 1 While
the railways have fulfilled the primary purpose of trans-
portation satisfactorily, their effect upon the trade, industry
and the internal development of the country, has fallen
short of expectations. In analysing the situation, it were
best to separate two distinct issues which are involved. In
the first place are these practices complained of such as
to involve undue discrimination against a party or parties,
and secondly do these practices contravene the spirit under-
lying the public policy ? It is clear that the first issue is a
limited one, being concerned with the ordinary railway
practice as it is defined and regulated by the Indian Railways
Act ; while the second is a much wider and complex issue,
touching upon the controversial subject of the national
fiscal policy. The modern neo-mercantilistic policy of
fostering industries by the manipulation of railway rates,
is not the best of all commendable methods. In the matter
of both these issues a guarded approach is necessary because
no judicial pronouncement upon them has ever been made
in the country. After we have examined the relevant
considerations surrounding these issues, we must turn to
an examination of the powers of the Government to super-
vise and control the railways, and if they prove to be in-
adequate or ineffectively exercised, to suggest steps to remedy
them.

We have already investigated some of the complaints of
the traders and the public in regard to railway rates discrim-
ination, and we have found that there is much justification
for them. Some of the practices were unduly discriminative,
and the law as well as the control of the Government was
defective. We do not know what defence the railways had,
if any, underlying some of their practices. An investigation
might prove that justification for the special export rates
does not exist to-day ; and that they could be abolished

1 Mr. Ghose explains that a very large number of special export and
import rates which constituted undue preference were removed after the
publication of his Monograph on Indian Railway Rates, in which he had
examined those anomalous rates. Indian Railway Problems, 1924, p. 293.

158 INDIAN RAILWAYS

without entailing any loss of revenue upon the State. That
these rates against which criticism was levelled were kept
merely in competition with other railways, and not because
the trade demanded them, was acknowledged by the railways
themselves. The rates especially to and from the ports
were lower than what the economy incidental to long lead
and heavy load warranted. Sir James Wilson, Financial
Secretary to the Punjab Government, commenting upon
the Ates to the ports, observed that the wheat from the
Punjab to Karachi, for instance, could be very well placed
in the British market at the rate of Rs.o-io-6 per maund,
and that there was no justification for the existing rate
being so low as Rs. 0-9-0 per maund. He concluded : " Seeing
therefore, that the one-tenth pie rates at competitive points
are not needed, they might be enhanced as suggested,
whereby complaints of anomalous rates would be removed
and a great deal of controversy ended . . . it is a waste of
money to maintain these rates, which not only mean sacrifice
of Government revenue, but invite applications for further
unnecessary reductions in rates at stations nearer the ports." 1
Another point which emerges out of this discussion is
that there is intense dissatisfaction on the part of the traders
and the Government at the methods of charging employed
by the railways. To say, then, that cases of discrimination
are few and that these are disposed of satisfactorily, were
to assume a false complacence not unlike that of the ostrich
in the desert. This contention is not tenable. On the
one hand ample testimony was tendered before the Acworth
Committee to prove the existence of a wide-spread grievance
among the users of the railways and that the alleged absence
of complaints before the railways or the Railway Board
was due to their conviction, engendered by long experience,
that their complaints would remain unheeded or would not
receive a fair consideration. 2 On the other hand, even a

1 Cited in Ghose, Monograph, pp. 202, 203. Vide also his Lectures on
Indian Railway Economics, Part III, 1923, p. 36. Report of the Indian
Industrial Commission, 1919, chap. xix.

a Report of the Acworth Committee, Vol. Ill, para. 4121.

The testimony before the Parliamentary Committee of 1881-82 is
sufficient to prove that it is no easy thing to fight a railway company.
" A complainant is a marked man and the Commission cannot protect
him against the vengeance of the idilroads."

COMPETITION & RATES DISCRIMINATION 159

superficial familiarity with the proceedings of the Imperial
Legislative Council, the Legislative Assembly, and of the
public conferences and congresses is sufficient to dispose
of that belief. 1 -

It is a matter of common acceptance now that charges
which encourage local industries are bound to act favourably

1 On 3 January, 1911, the Hon. Mr. Sachchidananda Sinha asked:

" (a) Will the Government be pleased to say if their attention has been
drawn to the Resolutions passed by the Government Industrial Conference
at Ootacamund in 1908, the third, the fourth and the fifth Indian Industrial
Conferences, the third South Indian Industrial Conference and the third
and fourth United Provinces Industrial Conferences to the effect that
existing railway rates on goods are generally excessive and affect injuriously
indigenous industries, in their competition with imported goods, and that
Government may make an inquiry into the whole subject and obtain
a reduction of the rates wherever these may be proved to be too heavy.

" (6) Is it a fact that the Government of the United Provinces and
Madras have addressed the Government of India on the subject ? Have
any other Provincial Governments done the same ? Will the Government
be pleased to lay such report on the table with the replies thereto ?

" (c) What action, if any, do the Government intend taking in the
direction suggested, if none has already been taken ? "

The Hon. Sir T. R. Wynne replied :

" The reply to question (a) is that Copies of the Resolutions referred
to have been received by the Government of India, except those of the
third South Indian Railway (? Industrial) Conference, and the fourth
United Provinces Industrial Conference.

" In reply to question (b) the United Provinces have addressed the
Government of India on the subject and the correspondence will be laid
on the table, and it will show that the Railway Board have impressed it
on the Railways that the subject is one that deserves their very careful
consideration .

" The Government of Madras have not addressed the Government of
India on this subject, and there are no papers to show that any other
Local Government has done so.

" The answer to question (c) is that the subject is not one that can be
dealt with by an inquiry, because in the first instance Government is not
prepared to agree off-hand to the statement that existing railway rates
on goods of indigenous origin are generally excessive, and secondly because
no general conclusion could be come to which would assist in deciding
what rates should be charged for indigenous commodities as compared
with the rates on imported goods, as the Railway Act does not admit of
any distinction being made between these two classes of goods in the charges
that may be made for their carriage.

" The Railway Act lays down that there shall be no undue preference,
and this applies as much to indigenous goods desirous of ousting imported,
as to imported goods competing with indigenous. Railways under the
Act cannot quote preferential rates for indigenous commodities and
prohibitive rates for imported goods."

* * *

In light of these remarks the Government of India would not be
justified in taking action in Jie direction desired, as the fixing of
rates which should be sufficiently low to develop a trade, is a matter
concerning which the trader should, in the first instance, deal direct
with the Railway Administrations concerned.

i6o INDIAN RAILWAYS

upon the railway revenues. They stimulate both the freight
and passenger traffic. The indirect gain to the country
would, again, be incalculable. Mr. Robertson had observed
it as a failing of the Indian railways that they were apathetic
to the development of industries on their route. 1 The
Government of India have urged upon them to pursue a far-
sighted policy and to help the local industries by according
to them legitimate facilities. In 1908, the Railway Con-
ference resolved that railways " will continue to give
sympathetic consideration to any question of rates calculated
to assist in the development of local industries." Subse-
quently, on the Government suggesting practical sympathy
to a local industry, the railway concerned replied that any
reduction favourable to that industry would kill the traffic
in the imported commodity which was much against its
interests. 2

This point was emphasized in 1915, when the Railways
Board issued a circular to the railways pointing out that
" the establishment of industries cannot fail directly or
indirectly to increase the business of the railways, and that
the administrations of railways have it in their power to
do much for the encouragement of new industries by the
quotation of favourable rates for the carriage of the raw
materials and of the finished products ; and the railway
companies were asked to co-operate in making a special
endeavour to do all that was possible for the encouragement
of Indian industries." 8 This circular, however, failed in
achieving its object. The railway companies did not take
the matter up with any earnestness ; while the Railway
Board left too much to the voluntary action of the railways
and did not follow up the circular with any directions for
practical guidance. The situation, as observed by the
Industrial Commission, 1919, by the Railway Committee,
1921, and by the Fiscal Commission, 1922, had remained
unaltered, showing the futility of issuing instructions
purely of an advisory nature. The Industrial Commission

1 Report, para. 208.

9 Proceedings of the Imperial Legislative Council. 1912.

Also Proceedings of the Imperial Legislative Council, 1918.

8 Report of the Indian Fiscal Commission, 1921-2, 73 (Cd. 1746).

COMPETITION & RATES DISCRIMINATION 161

had so many complaints about the rates policy of the
railways brought to their notice, that they were at some
pains to probe into the problem and observed that " The
history of rate fixation reveals a desire to divert traffic from
one Indian port to another, rather than a careful examina-
tion of the effect which the rates imposed would have on the
total cost of conveying the goods to their port of foreign
destination, and, therefore, on their ability to compete with
products from rival sources. Presumably relevant local
circumstances are duly taken into account when rates are
' fixed ; the point which we desire to make is that there has
been a tendency to think of attracting traffic to a particular
railway rather than to consider whether a real necessity exists
for reduction in the general interests of the country." As
a remedial measure, they laid down two principles for observ-
ance by the railways in fixing rates ; and these were subse-
quently endorsed by the Fiscal Commission.

(1) . . . 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 the ports.

(2) ... railways should accept the principle which is
followed in some other parts of the world, that a consignment
travelling over more than one line should be charged a
single sum based on the total distance. 1

That the railways had not altered their angle of vision,
and that their orthodox policy had made the situation
extremely acute, was witnessed in the evidence before the
Acworth Committee. The desire on the part of the com-
munity for State management of railways was shown to be
universal. " The railways are not worked in the interests
of the public," stated the Government of Madras. " Their
management is handed over, to a large extent, to the com-
panies whose sole interest lies in making money, and not
primarily in considering the public requirements." 2 They
added that railways should be worked in the interests of the
public as essential communications, and not as commercial
undertakings striving mainly at a large surplus over working

1 Report, chap. xix. The fort rule may be improved if after the
words " similar distances," " and in the same quantities " be added.
a Report of the Acworth Committee^ Vol. Ill, para. 4697.

L

162 INDIAN RAILWAYS

expenses and interest charges. 1 The United Provinces
Government opined that the railway administrations had
not always used their powers in fixing rates for goods in the
interests of Indian industries, and that, too much considera-
tion had been given to the reduction of freight on
imported goods and to the exports of raw material to the
detriment of indigenous industries. These allegations,
they added, had never been refuted. 2

These indictments from local Governments cannot be
lightly taken. They show a need for a change in the railway
policy. Too long has the belief subsisted among railways
in India that they are private enterprises and not public
services. A nation with a large leeway to make up and a
systematic goal set before it, cannot afford to be thwarted
in its achievement by the profit-making considerations of
public aided public utility corporations. In the situation
which we have attempted to unfold, the State is not justified
in pursuing any longer a laissez-faire policy towards the
railways.

In America, the Constitution provides for protection of
private property against confiscation by public authority.
Yet even there considerations founded upon public policy
are held to be supreme when they conflict with the profit-
earning rights of railways railways which are privately-
owned and are not guaranteed by the State. For instance,
in the National Hay Association v. the Lake Shore and
Michigan Southern Railway Company et. al. case important
issues of State policy v. railway policy were involved.
It may be recalled that in 1897 the Dingley Tariff Act had
aimed at protecting middle-west hay from the Canadian,
and for that purpose had increased the tariff on the latter
from two to four dollars a ton. On i January, 1900, the
roads operating under the Official Classification, changed
the classification of American hay from sixth to fifth class
with a corresponding increase of rates, but left the rates on
Canadian hay as they had been, i.e. lower than fifth class

1 Ibid., paras. 4706, 4682. In their memorandum they declare that
' The people of Madras have suffered for y sars from the effects of company
management on commercial lines." Vol. IV, p. 128.

9 Ibid., para. 5907.

COMPETITION & RATES DISCRIMINATION 163

rates. The Canadian hay rapidly increased in imports.
There was a complaint, and the railways pleaded in justifica-
tion need for more revenue and increased cost of service,
neither of which was convincing to the Interstate Commerce
Commission. On the contrary, they declared that the action
of the railways had thwarted the purpose of the Congress
and ordered that the middle-western producer be given an
equal advantage with the Canadian. 1

The case proves the existence of a possible conflict be-
tween the commercialism of a railway company and the
broader public interests. Without probing into the knotty
problem of the railway rates and protection, it might be
stated that protection given to a particular industry may
be nullified by an uncontrolled policy of railway rates, and
it may ensue that the tariff protection required by that
industry may have to be enhanced with a greater burden
upon the community. It is computed in America that the
import rates on railways neutralize something between
sixteen to twenty-one per cent of the tariff duties. 2 In
pursuing their individual aims, railways not only ignore,
but contravene social policy. This exposes the pretensions
of the adherents of laissez-faire or the system of natural
liberty. It would then be superfluous to comment upon
the urgency of an adequate State control over the rates
policy of the railways.

1 Hammond, Railway Rate Theories of the I.C.C., p. 160.

Vide also 19 Interstate Commerce Commission Report, p. 148. In
this case lemons from Sicily were able to compete successfully with those
from California in territory east of the Mississippi, in spite of a protective
tariff of $1*50. The Commission decided that an increase in railway rate
from $i to $1-25 was exorbitant and ordered its reduction to $i so as
to permit the sale of " home grown " lemons.

2 J. M. Clark, Standards of Reasonableness in Local Freight Discrimina-
tions, p. 95. Supra, the case of sugar.

CHAPTER VI

CONCLUSION : THE URGENCY OF A RATES ADVISORY
COMMISSION.

IF the trade of the country is to proceed unhindered and
to expand normally, it is manifest that the State ought to
have a real control over the railway companies and their
power of charging rates to the public. Instances were cited
to show that the railway companies in India possess sufficient
scope to impose and have actually imposed excessive or
unduly discriminative charges. The power and control of
the Government have been found to be incommensurate
with their responsibilities. The question if the State would
be within its rights in interfering with an industry which
partakes of the characteristics of a private enterprise need
not be laboured to-day. It is now commonly acknowledged
that the railway is imbued with features which differentiates
it from an ordinary private commerical venture, and that
on that basis the State is entitled to restrict its profit-earning
aims by legislative or by executive action. In India, the
railway is subsidized and helped in other ways by the State,
but even in countries where no such encouragement is given
to it, the State supervises its activities, because it is mono-
polistic ; it involves a huge outlay of capital, and it exercises
a quasi-public function for which it uses some of the sover-
reign powers of the State.

The subject of State help to the Indian railways was
dealt with extensively in a previous chapter. The railways
of India are practically the property of the State ; some of
them are managed by itself, while some are leased to private
working agencies on a profit-sharing basis. It was observed
that private enterprise has shunned the risk associated
with an Indian railway as an independent commercial

164

CONCLUSION 165

venture, and that but for the extensive support and encour-
agement given by the State, no lines originally would have
been constructed by it.

Even where railways are not financially helped by the
State as in Great Britain, or in the United States of America, 1
they are granted by it the right of eminent domain, in order
that they may secure land and structures necessary for
conducting their business. Secondly, all railways perform
the function of public carriers a function which is so vital
and far-reaching in its effects that it can only be performed by
them as agents of the State. Further, by their very nature
they are possessed of monopoly powers, the exercise of
which must be regulated by public authority. In spite
then of their private ownership their public use makes
them peculiarly affected by social considerations. If in the
performance of their function as public carriers, they exercise
their power to suit their own interests and impose unreason-
able or unduly discriminatory rates upon the public, they
are responsible to the State and liable to be corrected by it.
Regulation then presupposes a neglect by them of social
interests. On the other hand, their being profit-making
corporations and not benevolent institutions equally imposes
an obligation upon the State to see that with efficient and
economical management they are not prevented from
earning reasonable profits as a whole. It cannot be over-
looked that while they are public beneficiaries they are
equally public benefactors. The problem which confronts
us, then, is how to regulate these public utility corporations
so as to harmonize their interests with those of the public ;
or, in other words, how to provide for a combination of
adequate service, efficient operation and fair profits.

The need for the construction and extension of railways
for the benefit of the country was held to be of such para-
mount importance in India that for a long period the rail-
ways were allowed to have a free hand with their policy of
charging rates ; and thus full scope was permitted for the

1 In the earlier days, however, the total land grants made to the American
railways are calculated at 242,0 jo square miles, or one-fifth more than the
total area either of France, or Germany, over the above monetary
contributions or loans made to them by public authorities.

166 INDIAN RAILWAYS

play of private self-interest. In this, as in other respects,
an undiscriminative adherence to the policy pursued in
Great Britain, in spite of fundamental differences between
the two countries, has adversely affected the progress of
railways in India. Maxima rates were then fixed, below
which railways were permitted to vary their charges. After
the era of competition between railways had begun, an
ineffectual remedy against excessive or unreasonable rates
was sought by the Government by formulating rules of a
general nature. But rules or laws do not suffice per se to
provide for reasonable rates. Nor did competition, the law
of supply and demand, enlightened self-interest, or the
force of public opinion prove effective in regulating railway
rates. Administrative control there was none. This, as
well as the need for uniformity of railway practice resulted
in the Railways Act, 1890, the spirit of which was inspired
by the British Railway Acts of 1873 and 1888, but which
fell far short of them in supplying any real remedy for
possible unfair railway practices. It provided for a Railway
Commission to be temporarily set up at the discretion of,
and by the Governor-General in Council. 1 This provision
of the Act was, however, a dead letter from the moment
it was drafted. The Commission was too cumbersome of
appointment, and too expensive for the trader. The
railway companies again, strenuously objected to it as an
undue encroachment upon the powers which they possessed
under the contracts. The Commission, therefore, has never
been appointed even though the trading community has
applied for it. The protection which it was aimed to afford
against prejudicial charges of the railway companies, has
thus been negatived. The actual position to-day then is,
that in spite of the enormous interest which the Government
have in the railways, they have appointed no tribunal,
although it is provided by Irw, to investigate and decide
upon disputes either between a railway and a trader or
between two railways themselves. If a trader has any
complaint of unfair treatment against a railway, since a
Commission has not been appointed and no court of law will

1 Vide Appendix.

CONCLUSION 167

entertain his complaint, 1 he is, in effect, placed in the
anomalous and indefensible situation of having to appeal
to the railway against its own decision. But no person
can be trusted to be a judge in his own case. It is no wonder
then that the trader prefers to bear his ills rather than
attempt to seek redress from the railway concerned.

The need for an impartial Commission was felt as soon
as the railways began to compete among themselves and
manipulate rates. The Government had, of course, full
authority over the lines managed by themselves ; 2 but in
regard to the company-managed lines the case was different.
In their testimony before the Select Committee of 1884,
the British traders in India deprecated the absence of the
Government control over the rates policy of the companies,
and urged the desirability of a railway Commission. 3 Two
railway experts, Danvers and Rendel, voiced their views
in the same strain. 4 In his Report, Mr. Robertson pointed
out the imperative need which then existed for a standing
railway Commission to supersede the temporary Commission
which had been provided by the Railways Act, i8go. 5 That
the Commission provided by law was awkward of appoint-
ment and that, therefore, a Committee of inquiry should
be instituted to investigate the policy of railway rates was
the gravamen of the Resolution of Sir Vithaldas Thackersey
in the Imperial Legislative Council in 1912. In the same
Chamber in 1917, Mr. Jinnah moved a Resolution requesting
the Government to appoint a committee to examine the
working of the Indian Railways Act, and to establish a
permanent Commission. So recently we have had the
Acworth Committee definitely recommending the appoint-
ment of a Rates Tribunal ; a desideratum which was
endorsed by the Fiscal Commission. 6 With the existence
of cases in which railways have defied the fundamental

1 Report of the Acworth Committee, para. 4164.

2 It must be explained that the policy pursued by State-managed
railways has not been, in recent times, very dissimilar to that of the
company-managed railways.

8 Supra, chap. iv. The first railway Commission in Great Britain was
instituted in 1846.

4 Ibid. }

6 Report, para. 61.
6 Report of the Indian Fiscal Commission, 128.

168 INDIAN RAILWAYS

principles of justice in rate fixing, the absence of such a body
has been deeply felt in the country and its appointment
constantly pressed.

Reference must at this place be made to the relation
between the Secretary of State and the Government of
India and its effect upon the policy of the company railways
of charging rates. The control of the former over the free-
dom of the latter has always been of a stringent character,
with the concomitant result that the policy of. the Govern-
ment has lacked that definiteness and their authority that
finality which are essential for good administration. The
Acworth Committee deprecated this system of detailed
interference. If the usefulness of the Railway Board has
to be increased it is a primary necessity that the Secretary
of State should allow the Government of India greater
discretion so that they may permit the Railway Board
to act with greater responsibility and effectiveness. Thereby
also will the suspicion among the public be removed, that
the Boards of the railway companies are able to have their
way with the Secretary of State over the heads of the
Government of India.

The power of the Government of India to control railway
rates consists in framing classification for different descrip-
tions of goods and in fixing maxima and minima rates. The
Railway Board is the actual administrative machinery
employed for effecting this control. For a change in classifi-
cation or for classifying a new commodity, a railway adminis-
tration must apply to the Railways Board through the
channel of the Traffic Committee of the Indian Railway
Conference Association. The extent of the control of the
Government over rates is thus actually limited to the fixing
of the maxima in order to protect the public against ex-
orbitant charges, and in prescribing the minima to safe-
guard themselves against loss through excessive competition
by rate cutting. These rates which are usually in the
relation of three to one, are confessedly within very widely-
separated limits. On all sides it is conceded that ample
scope for the imposition of unreasonable rates does exist.
It has been held that within these limits, the power of the

CONCLUSION 169

Government to control rates is provided for in the contracts
of certain companies only ; and that in the case of others
where the Government do not possess such a power, the
only corrective- for unreasonable rates lies in the appoint-
ment of a Railway Commission. 1 It is not clear why the

1 The interpretation of the rates clause in the contracts with the railway
companies has ever created much uncertainty and difficulty. The earlier
contracts particularly were so loosely worded that the companies, it is
argued, subsequently turned them to suit their own interests. In the
contract with the East Indian Railway Company, dated 17 August, 1849,
Clause 8 stipulated that " the said Railway Company shall and will allow
the use of the said Railway to the public, on such terms as shall be approved
by the East India Company, and shall not in any case charge any higher
or different fares or tolls whatsoever, without such approval being first
obtained ; but such fares and tolls shall, when such net receipts as are
hereinafter mentioned shall in any year have exceeded 10 per cent upon
the outlay, be reduced in accordance with any requisition of the East
India Company in that behalf, but only with a view of limiting the said
fares and tolls, so far that the net receipts shall not exceed 10 per cent
as aforesaid." Evidently this vested in the Government an important
power of control. But the vague pronouncements of the Secretary of
State as well as the inertia of the Government of India, fostered a belief
that once the maxima were fixed the right to a later control had exhausted
until the profits had exceeded 10 per cent. The point was never seriously
raised by the Government. But that the position was not satisfactory
is gathered from the fact that in the renewed contract with the East
India Railway Company in 1879, certain fresh clauses were inserted by
which the State specifically reserved to itself the right to control rates
and fares for the lowest class of goods and passengers within defined limits,
and it was stipulated that " the Company shall charge rates and fares
as may from time to time be fixed by the Company with the approval of
the Secretary of State." The situation, however, did not improve in
practice, surprising though it may seem. For the Company subsequently
claimed that according to a strict legal interpretation, the State had no
right to interfere with its power to vary charges within the maxima until
its profits had exceeded 10 per cent. The added words were held to be
devoid of any meaning. According to Major Conway-Gordon, the Director-
General of Indian Railways, the Government even then did not refer this
point to a legal officer and allowed the Company to interpret it to its own
advantage. Vide the Report of the Select Committee on East Indian,
Railways, 1884, para. 4410. Also R. S. Chandrika Prasada Tiwari,
op. cit. p. 465.

In spite of this, in 1887, the Government of India enunciated the principle
that when once the maxima and minima rates and fares had been fixed,
there would be no further interference on their part. The Indian Railways
Act, 1890, is curiously silent on this point. Yet in the contracts dated
1890 and subsequent years, which include almost all the guaranteed
Companies, the limits of the Government's control are thus defined :
" The Secretary of State shall from time to time authorize maximum
and minimum rates within which the Company shall be entitled to charge
the public for services rendered by way of, or in connection with the
conveyance of passengers and goods on the undertaking, and shall prescribe
the several classes and descriptions of passengers and goods to which such
rates shall be respectively applicable." In the case of the most important
companies the following additional words appear : "as well as the extent

i;o INDIAN RAILWAYS

Government have not resorted to the remedy of drawing
closer together the maxima and minima and thus restrict
the scope for unfair practices. An^wav, the elaborate and
expensive procedure involved in the appointment of a
Commission has deprived the trader of any remedy against
a railway which charged him unreasonable rates. The
Government again, due to a misinterpretation of the con-
tracts with the companies, have not used certain of their
powers. But even then it is generally recognized that their
power is inadequate; in fact, that is hardly a country, the
Government of which with such heavy commitments in
their railways, have so little effective control over them,
and where these subsidiary corporations have assumed a
power comparable to their own. The Railway Board
testified before the Acworth Committee that " this position
was unsatisfactory and that it may reasonably be held that
the Government of India should in all cases be able, where
necessary, to exercise the fullest control in a matter in which
the general public interests are involved. We consider,
therefore, that the present powers which the Government
of India exercise under the contracts should be enlarged,
and that it should be definitely provided that in any case
where legitimate ground of complaint in respect of railway
rates fixed by the companies is shown to exist, the Railway
Board shall have power to compel the company to make
such revision as appears to be reasonable and in the public
interest." 1 The Acworth Committee were fully convinced

to which, within the maxima and minima so authorized, the Company
may vary the said rates in respect of the distance or weight or special
conditions under which such conveyance takes places or services are
rendered."

These newly added lines could not surely have been inserted without
having a definite aim in view. The whole cause was, however, so inter-
preted, both by the companies and the Government, that once the maxima
and minima were fixed the power of the Government to interfere was
non-existent. But as the Acworth Committee remark, although the
clause is badly drawn, it was meant to invest the Government with a power
not merely to fix the maximum and minimum of each class, but to decide
what consideration should be given to length of haul or size or weight of
consignment or other special circumstances in varying the rates within
the limits. If the charge was unreasonable, they could rectify it. Report,
paras. 147, 6412, 6418. *

1 Report of the Acworth Committee, Vol. IV, Statement No. 79.

CONCLUSION 171

of this and reported that they had " no doubt whatever
that further power to control rates ought to exist and be
exercised by some appropriate public authority." l

The need, th6n, for a simpler mechanism in the shape of
an impartial and expert body to which the trader could
appeal against what he thought excessive or unequal
charges imposed by a railway management, requires no
turther demonstration. The more urgent the need for it
becomes in a country like India, where railway management
is still impervious to public opinion. The public, through
such a body, would be able to meet the carriers on a status
of equality. Again, the experience of other countries
informs us that legislation per se is not sufficient to guarantee
just and reasonable rates, and that, therefore, a special
supervisory and advisory or executive body is necessary.
The transportation needs of a community are apt to change,
by the efflux of time, in a number of details of a minute
character. A broad legislative enactment with its rigidity
and finality cannot cope with these. It cannot be made
automatic, and unless administered by a special body of
experts, it tends to be ineffectual. Only a standing Com-
mission keenly alert to the changing situation and watchful
of the best interests of the community and of the railways
can grapple with the newly-arising factors and take immediate
appropriate action or advise the Government to do s.o
Informed by experience, permanent in tenure, not financially
interested in any railway, and free from the trammels and
influences of the political atmosphere, should be the attri-
butes of its personnel. In the case of India, a small body of
three members, consisting of a lawyer, chairman and a repre-
sentative each of the commerical and railway interests,
would seem to meet the situation. To augment its usefulness,
local assessors or co-opted members may be appointed upon
it.

The problem of its character and powers now arises.
Should it be a decisive and mandatory tribunal like the
Rates Tribunal in Great Britain or the Interstate Commerce
Commission in the United States, or should it, on the other

1 Ibid., Vol. I, para. 148.

172 INDIAN RAILWAYS

hand, be invested merely with investigating and advisory
powers ? The Acworth Committee have recommended a
Rates Tribunal for India based on that existing in Great
Britain. But on a closer consideration, it seems as if they
have raised their superstructure on doubtful analogy. The
railway situation in the two countries is dissimilar, and it is
likely to be more so with the passage of time. A tribunal
with important judicial and executive powers may work
without friction and with a measure of success in a country,
the railways of which were the property of private cor-
porations and in which the State had no financial interest.
But in India the majority of the railways is the property
of the State, a considerable portion of which is leased on
guarantee and profit-sharing terms to private companies.
The State, however, operates a mileage of 13,000^ and this
will further be swelled as the contracts with the railway
companies expire, unless in the interval there is a reversal
of policy. Since the early years of this century, the State
has been dependent upon railway revenues ; and although
now the railway budget is separated from the general budget*
it is provided that the State, under normal circumstances,
shall receive a certain percentage of the rail revenues over
and above the sum necessary to pay interest on the capital
invested by itself in the railways. With such a financial
interest, the State cannot view with equanimity, the possible
decision of a mandatory Rates Tribunal to pursue a course of
action which may thwart its purpose or may not incon-
ceivably endanger its financial equilibrium. At the present
juncture the possibility of conflict between the State and a
mandatory Tribunal is not entirely remote ; and this
was not visualized by the Acworth Committee.

A few alternatives suggest themselves to obviate this
difficulty. These powers should be delegated to the Railway
Board. The objection to such a proposal, however, would
be that as representative of a predominant partner in the
railway business it cannot be trusted to act as a fair and an
impartial judge in disputes with the public. Again, the

1 Inclusive of the mileage of the G.I. P. Railway, the contract with which
company expired on i July, 1925.

CONCLUSION 173

desideratum of having a facile, mobile and technically-
equipped body free from the trouble of looking after daily
railway operation, would remain unfulfilled. Or, the Central
Advisory Council might be vested with powers more exten-
sive than those it has to-day, so that it could investigate
complaints of excessive or discriminatory rates, and make
its recommendation to the Member in Charge of Railways.
An institution on similar lines exists in France and Germany.
But the Central Advisory Council is comparatively a large
body and is composed of members of the Legislature and
who are, therefore, not necessarily railway experts. The
need of a mobile body of whole-time officers ever vigilant
over railway management and policy would not be met.
Finally, there is the alternative of a small advisory Com-
mission, devoid of any statutory, judicial or executive
powers, but which would only inquire into cases brought
before it, report upon them and advise the Government to
take action. It seems as if under the peculiar Indian con-
ditions such a weak Commission with its motive of publicity,
would meet the case better than a strong Commission ;
although its utility would be minimized by having no power
to pronounce finally on matters before it. But it must be
kept in mind that if it is to function successfully it should be
vested with adequate powers, its recommendations should
normally be endorsed by the Government, and that it should
win over the confidence of the public as well as of the rail-
ways. 1

To pronounce that it would not have sufficient work to
do would be to misread the situation entirely. Its functions
would be varied and important. It would entertain and
inquire into cases of provincial rates conflicts, railway

1 The following is pertinent : "It has been a favourite belief of this
Board (Board of Railroad Commissioners of the State of Iowa), as it has
been of every commission, that the simple power to investigate and
recommend was quite sufficient to secure prompt compliance with the law.
It has often been asked of its members, if more power power to enforce
its recommendations would not increase the efficiency of the Board
and the Commission system. The invariable answer has been that the
best results had come from the exercise of mere advisory or recommenda-
tory powers ; that compliance without employing the usual power of
judicial execution was practically voluntary, and hence far more satis-
factory to the public." Cited m F. H. Dixon's State Railroad Control,
P- 123.

174 INDIAN RAILWAYS

facilities, spheres of influence and the extension of lines.
In regard to excessive or discriminatory rates, it would
investigate them and advise the Government not only on
matters of fact, but on matters of policy. It would listen
to all cases of rates, even within the maxima and minima ; for
instance, in a situation where a trader was charged the same
mileage rates for 1,000 as for 50 miles ; and would advise
the Government to make modifications therein cheaply and
expeditiously. All exceptional rates would come under
its purview. In addition, it would have plenty of work
to do in reference to alterations in classification, the con-
ditions attaching to risk notes and the matter of settlement
of claims. To protect it from being flooded with unreason-
able and vexatious applications, the procedure under
section 31 of the Railway and Canal Traffic Act, 1888,
might with advantage be adopted, and a deposit with it of
a sum of Rs.ioo be required. It would further prove invalu-
able as a means of preparing and disseminating useful
information as to rates, financial operations, and the methods
of management of the railways. 1 This would foster a greater
understanding of the railway situation among the public,
and in time develop co-operation between the two, at present,
almost hostile parties. Finally, in view of the need of
bringing the Railways Act up-to-date, such a body or its
chairman alone, might be employed in examining it in the
light of recent developments in the more advanced countries,
and prepare the draft of a new Act. 2

1 Vide Report on General Revision of Railway Rates and Charges, 1920
(Cd. 1098).

2 Report of the Acworth Committee, para. 157, Vol. I.

APPENDIX

THE INDIAN RAILWAYS ACT, 1890
CHAPTER V

Railway Commissions and Traffic Facilities
Railway Commissions

26. (i) For the purposes of this Chapter, the Governor-
General in Council shall, as occasion may in his opinion require,
appoint a Commission, styled a Railway Commission (in this
Act referred to as the Commissioners), and consisting of one
Law Commissioner and two lay Commissioners.

(2) The Commissioners shall sit at such times and in such
places as the Governor-General in Council appoints.

(3) The Law Commissioner shall be such judge of the High
Court, having jurisdiction in reference to European British
subjects under the Code of Criminal Procedure, 1882, in the
place where the Commissioners are to sit as, in the case of a
High Court established under the Statute 24 and 25 Victoria,
Chapter 104, the Chief Justice or, in the case of the Chief Court
of the Punjab, the Senior Judge, or, in the case of the Court of
the Recorder of Rangoon, the Chief Commissioner of Burma,
may, on the request of the Governor-General in Council, assign
by writing under his hand.

(4) The Lay Commissioners shall be appointed by the Governor-
General in Council, and one at least of them shall be of experience
in railway business.

27. The Commissioners shall take cognizance of such cases
only as are referred to them by the Governor-General in Council.

28. In any of the following circumstances, namely :

(a) Where complaint is made to the Governor-General in
Council of anything done or any omission made by a railway
administration in violation or contravention of any provision
of this chapter ;

(b) where any difference which is under the provisions of any
agreement required or authorised to be referred to arbitration
arises between railway administrations, and the railway adminis-
trations apply to the Governor-General in Council to have it
referred to the Commissioners ;

(c) where any other difference, being a difference between
railway administrations, or one to which a railway administration

175

176 INDIAN RAILWAYS

is a party, arises and the parties thereto apply to the Governor-
General in Couicil to have it referred to the Commissioners,
the Governor-General in Council, may, if he thinks fit, refer the
case to the Commissioners for decision.

29. The three Commissioners shall attend at the hearing of
any case referred to them for decision under this Chapter, and
the Law Commissioner shall preside at the hearing.

30. (i) In hearing any such case, the Commissioners shall
have all the powers which may be exercised in the hearing of ui
original civil suit by a High Court.

(2) The decision shall, if the Commissioners differ in opinion,
be in accordance with the opinion of the majority, and the
final order in the case shall be by way of injunction and not
otherwise.

(3) At the hearing, the Commissioners may permit any party
to appear before them either by himself or by any legal prac-
titioner entitled to practise in any High Court.

31. (i) An appeal shall not lie from any of the Commissioners
upon any question of fact on which two of the Commissioners
are agreed.

(2) Subject to the provisions of sub-section (i), an appeal
shall lie from an order of the Commissioners

(a) Where the Law Commissioner was the Recorder or Addi-
tional Recorder of Rangoon, to the High Court of Judicature at
Fort William in Bengal, and

(b) in any other case, to the High Court of which the Law
Commissioner was a member.

(3) Such an appeal must be presented within six months from
the date of the order appealed from, and shall be heard by a
bench of as many judges, not being fewer than three, as the High
Court may by rule prescribe.

(4) In the hearing of the appeal, the High Court shall, subject
to the other provisions of this chapter, have all the powers which
it has as an appellate Court under the Code of Civil Procedure,
and may make any order which the Commissioners could have
made.

32. Notwithstanding any appeal to the High Court from an
order of the Commissioners, the order shall, unless the Com-
missioners or the majority of them see fit to suspend it, continue
in operation until it is reversed or varied by that Court.

33. (i) The Commissioners, in the exercise of their juris-
diction under this Chapter, may from time to time, with the
general or special sanction of the Governor-General in Council,
call in one or more persons of engineering or other technical
knowledge to act as assessors.

(2) There shall be paid to such persons such remuneration as

APPENDIX 177

the Governor-General in Council upon the recommendation of
the Commissioners may direct.

34. The Governor-General in Council may make rules regu-
lating proceedings before the Commissioners, and enabling the
Commissioners to carry into effect the provisions of this Chapter,
and prescribing fees to be taken in relation to proceedings before
the Commissioners.

35. The costs of and incidental to any proceedings before
the Commissioners or the High Court under this Chapter shall
be in the discretion of the Commissioners or the High Court, as
the case may be, and the payment of costs awarded by the Com-
missioners may be enforced by the Court of which the Law
Commissioner was a judge, as if the payment had been ordered
by a decree of a High Court.

36. (i) The Court of which the Law Commissioner was a
judge may, if it appears on the application of any person who
was a party to the proceedings before the Commissioners, or on
appeal before the High Court, or of the representative of any
such person, that an injunction made under this Chapter by the
Commissioners or by a High Court has not been obeyed by the
party enjoined, order such party to pay a sum not exceeding
one thousand rupees for every day during which the injunction
is disobeyed after the date of the order directing such payment.

(2) The payment of such sum may be enforced by the Court
which made the order as if that Court had given a decree for
the same, and the Court may direct that the whole or any part
of the sum shall be paid to the person making application under
sub-section (i) or to the Government.

37. A document purporting to be signed by the Commis-
sioners or any of them, shall be received in evidence without
proof of the signature, and shall, until the contrary is proved, be
deemed to have been so signed, and to have been duly executed
or issued by the Commissioners.

38. The Commissioners shall, as soon as may be after the
disposal of each case referred to them, submit to the Governor-
General in Council a special report on the case, and the Governor-
General in Council shall cause the report to be published in such
manner as he thinks fit for the information of persons interested
in the subject-matter thereof.

39. Except for the purpose of the last foregoing section, a
Railway Commission shall be deemed to be dissolved at the close
of the last of the sittings of the Commissioners for the decision
of the cases referred to them :

Provided that, on the application of any person who was a
party to the proceedings before the Commissioners, or of the
representative of any such person, the Governor-General in

M

178 INDIAN RAILWAYS

Council may, if he thinks fit, in any case in which the order passed
by the Commissioners is not open to appeal, re-appoint the
Commissioners for the purpose of hearing an application for a
review of their decision, and of granting the same and re-hearing
the case if they think that the case should be reheard.

40. Subject to the foregoing provisions of this Chapter, and
to any direction of Her Majesty in Council, an order of the Com-
missioners shall be final, and shall not be questioned in or re-
strained by any court.

41. Except as provided in this Act, no suit shall be instituted
or proceedings taken for anything done or any omission made
by a railway administration in violation or contravention of
any provision of this Chapter, or of any order made thereunder
by the Commissioners or by a High Court.

Traffic Facilities

42. (i) Every railway administration shall, according to
its powers, afford all reasonable facilities for the receiving,
forwarding and delivering of traffic upon and from the several
railways belonging to or worked by it, and for the return of
rolling-stock.

(2) A railway administration shall not make or give any
undue or unreasonable preference or advantage to or in favour of
any particular person or railway administration, or any par-
ticular description of traffic, to any undue or unreasonable
prejudice or disadvantage in any respect whatsoever.

(3) A railway administration having or working railways
which form part of a continuous line of railway communication,
or having its terminus or station within one mile of the terminus
or station of another railway administration, shall afford all
due and reasonable facilities for receiving and forwarding by
one of such railways all the traffic arriving by the other at such
terminus or station without any unreasonable delay, and without
any such preference or disadvantage as aforesaid, and so that no
obstruction may be offered to the public desirous of using such
railways as a continuous line of communication, and so that all
reasonable accommodation may, by means of such railways, be
at all times afforded to the public in that behalf.

(4) The facilities to be afforded under this section shall include
the due and reasonable receiving, forwarding, and delivering
by every railway administration, of through traffic to and from
the railway of any other railway administration at through rates.
Provided as follows :

(a) The railway administration requiring the traffic to be
forwarded shall give written notice of the proposed through
rate to each forwarding railway administration, stating both its

APPENDIX 179

amount and its apportionment, and the route by which the
traffic Is proposed to be forwarded. The proposed through rate
for animals or goods m?y be per truck or per maund :

(6) each forwarding railway administration shall, within the
prescribed period after the receipt of such notice, by written
notice inform the railway administration requiring the traffic
to be forwarded whether it agrees to the rate, apportionment,
and route, and if it has any objection, what the grounds of the
oojection are ;

(c) if at the expiration of the prescribed period no such objec-
tion has been sent by any forwarding railway administration,
the rate shall come into operation at the expiration of that
period.

(d) if an objection to the rate, apportionment or route has
been sent within the prescribed period, the Governor-General
in Council may, if he thinks fit, on the request of any of the railway
administrations, refer the case to the Commissioners for decision ;

(e) if the objection is to the granting of the rate or to the
route, the Commissioners shall consider whether the granting of
a rate is a due and reasonable facility in the interests of the
public, and whether, regard being had to the circumstances,
the route proposed is a reasonable route, and shall allow or
refuse the rate accordingly, or fix such other rate as may seem
to the Commissioners to be just and reasonable ;

(/) if the objection is only to the apportionment of the rate
and the case has been referred to the Commissioners, the rate
shall come into operation at the expiration of the prescribed
period, but the decision of the Commissioners as to its appor-
tionment shall be retrospective : in the case of any other ob-
jection the operation of the rate shall be suspended until the
Commissioners make their order in the case ;

(g) the Commissioners in apportioning the through rate shall
take into consideration all the circumstances of the case, includ-
ing any special expense incurred in respect of the construction,
maintenance, or working of the route, or any part of the route,
as well as any special charges which any railway administration
is entitled to make in respect thereof ;

(h) the Commissioners shall not in any case compel any
railway administration to accept lower mileage rates than the
mileage rates which the administration may for the time being
legally be charging for like traffic carried by a like mode of
transit on any other line of communication between the same
points, being the points of departure and arrival of the through
route ;

(i) subject to the foregoing provisions of this sub-section, the
Commissioners shall have full power to decide that any proposed

i8o INDIAN RAILWAYS

through rate is due and reasonable, notwithstanding that a less
amount may be allotted to any forwarding railway administra-
tion out of the through rate, than the maximum rate which the
railway administration is entitled to charge, and to allow and
apportion the through rate accordingly ;

(j) the prescribed period mentioned in this sub-section shall
be one month, or such longer period as the Governor-General in
Council may by general or special order prescribe.

43. Whenever it is shown that a railway administration
charges one trader or class of traders, or the traders of any local
area, lower rates for the same or similar animals or goods, or
lower rates for the same or similar services, than it charges to
other traders, or classes of traders, or to the traders in another
local area, the burden* of proving that such lower charge does
not amount to an undue preference shall lie on the railway
administration.

(2) In deciding whether a lower charge does or does not amount
to an undue preference, the Commissioners may, so far as they
think reasonable, in addition to any other considerations affecting
the case, take into consideration whether such lower charge is
necessary for the purpose of securing, in the interests of the
public, the traffic in respect of which it is made.

44. Where a railway administration is a party to an agree-
ment for procuring the traffic of the railway to be carried on
any inland water by any ferry, ship, boat, or raft which does
not belong to or is not hired or worked by the railway adminis-
tration, the provisions of the last two foregoing sections applic-
able to a railway shall extend to the ferry, ship, boat or raft
in so far as it is used for the purposes of the traffic of the railway.

45. A railway administration may charge reasonable ter-
minals.

46. (i) The Governor-General in Council may, if he thinks
fit, refer to the Commissioners for decision any question or
dispute which may arise with respect to the terminals charged
by the railway administration, and the Commissioners may
thereupon decide what is a reasonable sum to be paid to the
railway administration in respect of terminals.

(2) In deciding the question or dispute the Commissioners
shall have regard only to the expenditure reasonably necessary
to provide the accommodation in respect of which the terminals
are charged, irrespective of tlie outlay which may have been
actually incurred by the railway administration in providing
that accommodation.

BIBLIOGRAPHY
A. WORKS ON INDIAN RAILWAYS
Administration Reports of the Railways in India.
ANDREW, W. P. ; Indian Railways, 1884.
AN EX-RAILWAY OFFICIAL: State versus Company Railway

Management of Indian Railways, 1916.
ARGYLL, DUKE OF : Financial Statement of India, 1869.
BELL, H. : Railway Policy in India, 1894.

Recent Railway Policy in India, 1900.
BOURNE, J. : Railways in India, 1848.
CHAPMAN, J. : The Cotton and Commerce of India, 1851.
CONNELL, A. K. : The Economic Revolution of India, 1883.

Indian Pauperism, Free Trade and Railways,

1884.

COTTON, ARTHUR : Paper on Railway Expenditure in India, 1869.
DANVERS, J. : Indian Railways, 1877.
DAVIDSON, E. : The Railways of India, 1868.
FINNEY, S. : Railway Management in Bengal, 1896.
GEORGE, E. M. : Railways in India, 1874.
GHOSE, S. C. : Indian Railways and Indian Trade, 1911.

,, A Monograph on Indian Railway Rates, 1918.

Indian Railway Economics. Part I, 1922 ;
Parts II and III, 1923.

Indian Railway Problems, 1924.

A Paper on Railway Economics, 1924.
HANUMANTA RAU : Railway Traffic Guide, 1914.
HAUGHTON, B. : Indian Railway Network, 1885.
HECTOR, J. : Land and Railways in India, 1875.
HUDDLESTON, G. : History of the East Indian Railway, 1906.
Imperial Gazeteer of India, Vol. Ill, 1907.
Indian Railway Conference Association ; Conference Regulations,

Indian Railways : An Argument for a Government Monopoly in

Preference to Private Enterprise, 1884.
Indian Wheat versus American Protection, 1883.

181

182 INDIAN RAILWAYS

IYER, K. V. : Indian Railways, 1924.

JAGTIANI, H. M. : The Role of the State in the Provision of Rail-
ways, 1924.

McGEORGE, G. W. : Ways and Works in India, 1894.

MEDLEY, J. G. : Railways in Upper India, 1884.

MEHTA, D. I., and SHAH, P. A. : Indian Railways Act, 1917.

MOLESWORTH, G. L. : Report on State Railways, 1872.

PEARS, T. T. : Our Indian Railways, 1860.

Proceedings of the Indian Legislative Council.

Proceedings of the Indian Legislative Assembly.

Report of the Select Committee on East India (Railways) 1858.

Report from the Select Committee on East India Public Works,
Cd. 137, 1879.

Report of the Indian Famine Commission, Cd. 2735, 1880.

Report of the Select Committee on East India Railway Communica-
tions, Cd. 225, 1884.

Report on the Administration and Working of Indian Railways,
by T. ROBERTSON, Cd. 1713, 1903.

Report on the Organization and Working of Railways in America,
by N. PRIESTLEY, 1904.

Report of the Committee on Indian Railway Finance and Adminis-
tration, Cd. 4111, 1908.

Report of the Committee appointed by the Secretary of State to
inquire into the Administration and Working of Indian
Railways, Cd. 1512, 1921.

RUSSELL, L. P., and BAYLEY, V. B. F. : The Indian Railways
Act, 1903.

SCHULZ, E. : Die Ostindischen eisenbahnen ; ihre geschichte und
entwicklung, 1909.

STRACHEY, J. and R. : The Public Works of India, 1882.

THORNTON, W. T. : Indian Public Works, 1875.

TIWARI, CHANDRIKA PRASADA : The Indian Railways, 1921.

Various Papers printed by Order of the House of Commons.

VILLEROI, B. DE : History of the North Western Railway, 1896.

WELD, W. E. : India's Demand for Transportation, 1921.

WHITEHEAD, J. : Indian Railways described, 1862.

B. WORKS ON RAILWAY RATES.
ACWORTH, W. M. : The Railways and the Traders, 1891.
ACWORTH, W. M. and STEPHENSON, Vf. T. : Elements of Railway
Economics, 1924.

BIBLIOGRAPHY 183

BROWN, H. G. : Transportation Rates and their Regulation, 1916.

CLARK, J. M. : Standards of Reasonableness ^n Local Freight
Discriminations, 19^.0.

COLSON, L. C. : . Transports et Tarifs, 1907.

ELY, O. : Railway Rates and Cost of Service, 1924.

HADLEY, A. T. : Railroad Transportation, 1886.

HAINEC, H. S. : Problems in Railway Regulation, 1911.

HAMMOND, M. B. : Railway Rate Theories of the Interstate Com-
merce Commission, 1911.

JOHNSON, E. R. and HEUBNER, G. G. : Railroad Traffic and
Rates, 1910.

JOHNSON, E. R. and VAN METRE, T. W. : Principles of Railroad
Transportation, 1921.

JONES, E. : Principles of Railway Transportation, 1924.

KIRKMAN, M. M. : The Basis of Railway Rates, 1907.

KNOOP, D. : Outlines of Railway Economics, 1923.

LAUNHARDT, W. : Theorie der Tarifbildung der Eisenbahnen, 1890.

McFALL, R. J. : Railway Monopoly and Rate Regulation, 1916.

McPHERSON, L. G. : Railroad Freight Rates, 1909.

MARRIOTT, H. : Fixing of Rates and Fares, 1908.

RIPLEY, W. Z. : Railroads, Rates and Regulation, 1913.
Railroad Problems, 1913.

SAX, E. : Die Verkehrsmittel in Volks und Staatswirtschaft, 1918.

ULRICH, F. : Das Eisenbahntarifwesen, 1886.

VANDERBLUE, H. B. and BURGESS, K. F. : Railroads : Rates
Service Management, 1923.

WILLIAMS, S. C. : The Economics of Railway Transport, 1909.

INDEX

Accounts, Government examiners
of, 48.

Acworth Committee, on advisory
councils, 126 ; Government con-
trol, 170; level of rates, 116;
public relations, 122 ; Railway
Board, 51, 52 ; rates policy,
principles of, 161 ; Rates
Tribunal, 167, 172 ; Secretary
of State, functions of, 168 ;
traders' complaints, 158 ; urgency
of reform, 53.

Acworth, Sir William, on dis-
crimination, 68 ; spheres of
influence, 46 ; traffic managers,
advice to, 70.

Administration, report on, 43 n. 48,
102.

Advisory Commission, advocated,
173 ; need of, 164 ; powers of,
174.

Advisory Councils, absence of, 144 ;
advocated, 125, 126.

Afghan War, effect of, on railway
construction, 36.

Amalgamation, tendency towards,
109.

Argyll, Duke of, 29.

Ashley Committee of 1881, 104.

" Assisted companies," 42.

Bandies, complete with railways,

85.

Baring, Sir Evelyn, $00Cromer, Lord.
Bell, Horace, book of, referred to,

42, 43-

Bengal Central Railway, 42.
Bengal Nagpur Railway, 41, 43,

141.

Block rates, 134-138, 140, 143.
Board, Government, 49.
Board of Control, averse to

guarantee, 16, 17.
Bombay and Baroda Railway,

Government terms of agreement

with, 19.

Bombay Chamber of Commerce, 46.
Branch Lines, 43, 44.
British Railway Acts of 1873 and

1888, 166.

British railway practice in India,

98.

Broach case, 135.
Buckingham Canal case, 138.
Budget, railway finances separated

from, v, 55.

Canning, Lord, on terms of con-
tracts, 26.

Capital, expenditure of, limited,
38 ; raising, difficulty of, 16,
17 ; raising of, by Government,
23, 30.

Central Advisory Council, estab-
lishment of, v.

Chamber of Commerce, complaints
of, 143.

Chapman, Mr., on railway con-
struction, 15.

Chesney, General, on Government
terms of agreement, 33, 34.

Chord line opened, 95.

Classes, passenger, need for, in
India, 81.

Classification Committee, 120.

Classification of goods, changes in,
made without notice, 125 ; pro-
posed on E.I. R., in; uniformity
desirable in, 1 18, 1 19.

Clearing House, no, 118.

Commission, Railway, recom-
mended, 52.

Commission, Standing, need for, 167.

Communications Department,

Acworth Committee on, 140.

Company-managed railways, power
of State over, vi.

Competition, absence of, 97, 101,
102 ; boat, 96 ; discrimination
resulting from, 132 ; ineffective-
ness of, 128 ; rates reduction
due to, 145 ; Secretary of State
on, 103.

Complaints, Acworth Committee
on, 158 ; body to deal with,
absence of, vi ; Chamber of
Commerce on, 143 ; discrimina-
tion justified, of, 157 ; traders',
123, 125, 146, 159, 167.

i86

INDEX

Construction of railways, annual,

53 ; Commission on, 16 ; cost

of, per mile, 25 ; delays in, 21 ;

famine necessitates, 39 ; finance

and, 34 ; guarant je system,

under, 28 ; Railway Board,

under, 51 ; State aid for, 16 ;

State, by the, 35, 36.
Consulting Engineers, duties of,

20, 47, 48, 50 ; inexperience of,

24.

Contracts, badly worded, 24.
Control, decentralization of, 47, see

also Government and State

control.

Cost of service, 74-6, 79.
Cotton, alleged preferential rates

on, 154.
Cotton trade, benefits from railway

development, 22 ; state of, 12, 13.
Court of Directors of E.I. Coy. on

construction, railway, 15 ;

guarantee by Government, 17 ;

profits, 82.

Credit, use of Government, 31.
Cromer, Lord, financial statement

of, 1 88 1 -2, 41 ; limit to capital

expenditure, deplored by, 38 ;

policy initiated by, v.
Curzon, Lord, on functions of

Board, 49.

D

Dalhousie, Lord, on Government,
functions of, 13 ; guarantees, 23 ;
Indian Railways, 106 ; railway
development, n, 12 ; trade, 145 ;
trunk lines, 20.

Dingley Tariff Act of 1897, I ^ 2 -
Director General of State Railways,

47-

Discrimination, 127, 129-131, 153 ;
between rich and poor, 67 ; com-
plaints of, vi, 157, 158 ; joint
costs and, 65.

Distance, a basis for rate-making,
?6, 77-

Earnings of Indian railways, 55,

124.
East Indian Railway Company, 20,

37, 42, 95-7 ioo.
East Indian Tramway Company,

26, 27.

Eastern Bengal Railway, 19, 42.
Equal mileage rates, 77, 104.
Experimental lines, 12.

Export traffic, special rates for,

143, 157-
Exports, grain, 105.

Famine, alleviated by railway
development, 14 ; and railway
construction, 36 ; effect of, on
traffic, 99

Famine Insurance Grant, 39.

Finance and railway construction,

34-

Finance Committee established, v.
Finance Department, 45, 55.
Financial Commissioner appointed,

52.
Fletcher, Mr., on railway fares, 83.

Gauge, 30, 35, 36.

Germany, rates in, 69.

Government, as a commercial
entrepreneur, 56 ; fixing of rates
by, 89, no, in.

Government control, 20, 24, no,
170.

Government Director, on fares,
86-88 ; powers of veto of, 24.

Government of India, and con-
struction, 34, 43 ; power of, over
railways, 99, 109 ; purchase of
railways by, 42 ; on rates,
102, 107 ; relations with Secre-
tary of State, 33, 168.

Grain traffic, 114, 141, 142.

Grant, Sir J. P., on guarantee
system, 26.

Great Indian Peninsula Railway,
18, 20, 42.

Great Southern Railway, 19.

Guarantee system, 16, 17, 19, 23-6,
29, 43, 86, 94.

Guaranteed railways, 31, 32.

Gur, rates on, 152.

H
Hardinge, Lord, on Government

grant, 16.
Hartington, Lord, v, 37, 41.

Impartial Commission, need for,

137.
Import traffic, preferential rates

for, 157, 163.
Inchcr.pe Retrenchment Committee,

125.

INDEX

187

Increasing returns, 59. 64, 129.
Indian Branch Railway Company,

26, 2' 7 .

Indian Industrial Commission, 121.
Indian Midland Railway, 41, 43.
Industrial Commission, 160, 161.
Industrial development due to

railways, 145.
Infant industries, 152.
Iron industry, 39.

J

Jinnah, Mr., 167.
Joint costs, 59, 63, 66.

Laing, Mr. S., 26.

" Laissez-faire," 162.

Land, free provision of, 16, 27, 43.

Lawrence, Lord, on railway exten-
sion, 29.

Level of rates in India, 112-116.

Light railways, 31.

Loans, raising of, 35.

Local Advisory Committees, v.

Local Governments, complaints of
rates policy by, 161-2 ; powers
of, over rates, 90.

Local industries, preferential rates
for, 159, 1 60,

Long-distance traffic, 145.

M

Mackay, Mr., 15.
Madras Railway, 19, 82-4.
Mails, free carriage of, 19, 81 ;

speed of, 12.
Maintenance costs, 16.
Management under guaranteed

companies, 29.

Marshall, Alfred, on joint costs, 61.
Match industry, 147-49.
Mayo, Lord, 29, 92.
Maximum rates, altered, 117;

fixed by Government, 89, 90,

1 10 ; futility of, 108.
McKay Committee, 44, 49, 53, 54.
Medley, Col. J. G., 119.
Metre gauge, 35.
Meyer, Mr. B. H., 73.
Mileage, annual construction of,

32 ; increase of, 36 ; open in

India, 52, 53 ; operated by

State, 172.
Military Board, 47.
Military considerations, n, 12, 16.

Militia, free carriage of, 81 ; re-
duced fares for, 19.

Minimum rates fixed by Govern-
ment, no.

Monopoly, +he railways a, 80, 128.

Monsoon, effects of, on communica-
tion, 14.

Mutiny, The Indian, 21, 32.

N
Northcote, Lord, 28, 29.

O

Official Director, 20.

Oil, rates on, 156.

Operating ratio, 116.

Operation, railway, Government

control of, 19.
Oudh and Rohilkand Railway, 42,

92.

Parliamentary Committee on rail-
way problems, 40.

Passenger traffic, 22.

Pears, Col., 85.

Pigou, Prof., on joint costs, 61.

Pilferage, 96.

Politics and railways, 152.

Preferential rates, for cotton, 153 ;
for import and export traffic, 146,
157 ; for leather, 154 ; for local
industries, 160 ; Government of
India on, 153 ; law relating to,
147.

Prices, rise in, 114.

Priestley, Mr., 113.

Private enterprise, 29, 37, 41, 164.

Profit-earning rights, 162, 164.

Profits, division of, 33 ; regulation
of, 1 6 ; uncontrolled, 82.

Public, attitude of the, to State
management, vi ; railway rela-
tions with, 144.

Public interests and those of the
railways, 163.

Public Works Department, 40.

Public Works Secretariat, 47.

Purchase of railways by Govern-
ment, 41.

Rahimtoola, Sir Ibrahim, 46.
Railway Acts, British, of 1873 and

1888, 166.
Railway Board, vii, 46, 50-2, 122,

136-8, 160, 168.

188

INDEX

Railway Commission, suggested, vii.

Railway Conference, 101, 118, 160.

Railway Conference Association,
1 20.

Railway Department, 50-2.

Railways Act, American, 77.

Railways Act, Indian, 147, 166,
i75-8o.

Raj pu tana Malwa State Railway,
101.

Rate-cutting, 117.

Rates, burden of, passed on to the
consumer, 72 ; development of,
Chap. IV ; dissatisfaction with,
158 ; fixing of, in Europe, 79 ;
Government control of, 74, in,
171 ; increase in, since before
the war, 123 ; Industrial Com-
mission on, 161 ; level of, in
India, 112, 116 ; low, good effect
of, 98, 99 ; maximum, 89, 90,
108, no, 117; minimum, no;
on grain traffic, 141, 142 ; on
oil, 156 ; on matches, 147-49 ;
on sugar, 149 ; ports, to and
from, 155, 158 ; telescopic, 121 ;
theory of, Chap. III.

Rates Advisory Commission, need
for, 164.

Rates Tribunal, AcworthCommittee
in favour of a, 167, 172.

Report, of Acworth Committee, see
Acworth Committee ; of Govern-
ment Director, 86 ; of McKay
Committee, see McKay Com-
mittee.

Rendel, Mr., 94.

Robertson, Mr. T., 44, 48, 112, 119,
121.

Royal Commission of 1867, 104.

Rupee, depreciation of, 43.

Salisbury, Lord, 35.

Secretary of State, interference of,
99, 107 ; on construction, 43 ;
questions referred to, 20 ; regu-
lation of rates by, 91, 92 ; rela-
tions of, with Government of
Government of India, 168.

Select Committee of 1884,106,167.

Simplification of goods traffic, 118.

Sonthal Rebellion, 32.

Southern Mahratta Railway, 40, 41.

Spheres of influence, 46.

Standing Commission advocated,
171.

State, the, aid of, 116; borrowing
of money by, 28, 40 ; competition
and, 132, 143 ; construction by,
36 ; credit of, 29 ; mileage
operated ^y, 172 ; role of, as an
entrepreneur, 28.

State control of railways, vi, 19,
80, 81, 105, 164.

State management, v-vi, 42, 172.

Stephenson, Mr. W. Tetley, vii,

55-

Strachey, General, 41.
Subsidy, 26, 43.

Suez Canal, effect of opening of, 93.
Sugar industry, 149-52.
Surcharge, 115, 116.

Tapering rates, 113, 121.

Tariff Simplification Committee,
120.

Taussig on joint costs, 61.

Telescopic rates, 121.

Terrain suitable for railway con-
struction, 15.

Thackersey, Sir Vithaldas, 147, 167.

Through rates, 118, 119.

Tirhat State Railway, 41.

Transport facilities prior to rail-
ways, 13.

Transportation Act, American, of
1920, 76.

Traffic, nature of, in India, 144, 151.

Trunk lines, right of Government
to purchase, 15.

U

Unification, problems of, 118.
United States, rapid development
of, 69.

Value of service theory, 78, 79.
Veto, powers of, by Government

Director, 24.
Vignoles, Mr. C. B., 15.

W

Wagons, shortage of, 53.

War, effect on railways of the, 114,

115-

Waterways, competition of, 133.
Wheat, export of, 104.
Wilson, Sir James, 158.

Zone" system, 77.

BOOKS TO READ

THE R6LE OF THE STATE IN THE
PROVISION Ci RAILWAYS

By H. M. JAGTIANI, M.Sc. With an Introduction by Sir
WILLIAM ACWORTH, K.C.S.I. Demy 8vo. 156 pp. 8s. 6d.

It is the purpose of this book to investigate what system is best adapted
to lead to a healthy development of railways in a country and to see to
what extent the association of the State is necessary. For this purpose
three countries are examined : England, Prussia and India.

New Statesman. " Mr. Jagtiani's book is principally a short and clearly written account of
the development and organization of railways in three countries England, Prussia, and
India. . . . His book is well worth study by those interested in the problems of railway control
and ownership in Great Britain."

CURRENCY AND PRICES IN INDIA

By C. N. VAKIL, M.A., and S. K. MURANJAN, M.A. Demy
8vo. 560 pp. 185.

This volume explains in detail the causes affecting the changes in the
prices of different important commodities and the general price-level in
India. The part played by the currency system in this connection is
also fully discussed.

MERCANTILISM AND THE EAST INDIA
TRADE

By P. J. THOMAS, M.A,, B.Litt. Demy 8vo. 190 pp.
8s. 6d.

The Balance of Trade Controversy in 1620 The Protectionist
Controversy Fostering National Industries The Consumption of Indian
Textiles in England Discontent of English Industries English Woollen
and Silk Industries The Calico Trade, 1700-1719 How Protectionism
Finally Triumphed The Weavers' Riots, 1719.

OUTLINES OF INDIAN CONSTITUTIONAL
HISTORY

By W. A. J. ARCHBOLD, M.A., LL.B., late Scholar of Peter-
house, and Whewell University Scholar in the University of
Cambridge, formerly Principal of the Aligarh, Dacca and
Muir Central Colleges, and Fellow of Calcutta, Allahabad
and Benares Hindu Universities. Demy 8vo. 360 pp. i8s.

P. S. KING & SON, LTD.
14 GREAT SMITH STREET, WESTMINSTER, S.W.I

BOOKS TO READ

A HISTORY OF THE CANADIAN PACIFIC
RAILWAY

By HAROLD A. INNIS, Ph.D., Lecturer in the Department of
Political Economy in the University of Toronto. Demy 8vo.
376 pp. i2s. 6d.

The Times Literary Supplement. " The first part is a fully documented sketch of the history
and economic development of Canada in the days before the coming of the railway. . . . The
latter part is a study, largely statistical, of the expansion of the railway, freights, passengers,
earnings and expenses."

THE ECONOMIC POSITION OF PERSIA

By MOUSTAFA K. FATEH, M.A. Demy 8vo. 100 pp. 6s.

CONTENTS : Introductory Agriculture and Irrigation Agricultural
Products Mineral Products Mineral Resources The Oil Industry
Manufactured Articles Modern Industry Communications Finance and
Banking Commerce and Trade The Future Economic Development
of Persia.

THE ECONOMIC DEVELOPMENT OF
RUSSIA FROM 1905 TO 1914, with special
reference to Trade, Industry and Finance

By MARGARET S. MILLER, M.A., B.Com. Demy 8vo. 307 pp.
Two Maps. I2s. 6d.

This book is an attempt to present as accurate a picture as possible of
the actual facts of Russia's economic development during the decade
preceding the Great War, tracing the predominant influence of State
action in^the various spheres of economic activity.

THE INDUSTRY AND TRADE OF JAPAN

By S. UYEHARA, M.Sc., with an Introduction by His
Excellency BARON HAYASHI. Demy 8vo. 340 pp. 155.

The purpose of this book is, firstly, to survey the statistical development
of Japan's industry and foreign trade, which have enormously increased
since the Meiji Restoration, 1868 ; and, secondly, to examine closely the
economic state of present-day Japan and also to elucidate the way to
which she should be guided in the future.

P. S. KING & SON, LTD.
14 GREAT SMITH STREET, WESTMINSTER, S.W.I

STUDIES IN ECONOMICS
AND POLITICAL SCIENCE

A Series of Monograms by Lecturers and Students connected with the
London School of Economics and Political Science.

EDITED BY THE DIRECTOR OF THE LONDON SCHOOL
OF ECONOMICS AND POLITICAL SCIENCE.

Volumes marked thus * are out of print.

*1. The History of Local Rates in England, in relation to the
Proper Distribution of the Burden of Taxation

The substance of Five Lectures given at the School in November and
December, 1895. By EDWIN CANNAN, M.A., LL.D. 1896; second
enlarged edition, 1912. xv. and 215 pp., Crown 8vo, Cloth. 55. net.

P. S. King & Son.

2. Select Documents Illustrating the History of Trade
Unionism

1. The Tailoring Trade

By F. W. GALTON. With a Preface by the Rt. Hon. SIDNEY WEBB, LL.B.,
M.P., and Bibliography. 1 896. Re-issued 1 923. 242 pp., Crown 8vo, Cloth.
55. net. Reprint of various original documents, among'others The Cases of
the Master Taylors, and of the Journeymen Taylors of London, 1721.
Ditto, 1752, 1767, 1778 and 1800. Strike of the Tailors of Edinburgh,
1823.- Birmingham, 1825. Reports and Circulars, 1834. Rules of the
Society of Journeymen Tailors, 1866. P. S. King 6 Son.

*3. German Social Democracy

Six Lectures delivered at the School in February and March, 1896. By
the Hon. BERTRAND RUSSELL, B.A., late Fellow of Trinity College,
Cambridge. With an Appendix on Social Democracy and the Woman
Question in Germany. By ALYS RUSSELL, B.A. 1896. 204 pp., Crown
8vo, Cloth. $s. net. P. S. King < Son.

4. The Referendum in Switzerland

By M. SIMON DEPLOIGE, University of Louvain. With a Letter on the
Referendum in Belgium by M. J. VAN DEN HEUVEL, Professor of Inter-
national Law in the University of Louvain. Translated by C. P. TRE-
VELYAN, M.A., Trinity College, Cambridge, and edited, with Notes,
Introduction, Bibliography, and Appendices, by LILIAN TOMN (Mrs.
Knowles), of Girton College, Cambridge ; Research Student at the School.
1898. x. and 334 pp., Crown 8vo, Cloth. 7$. 6d. net.

P. S. King < Son.

5. The Economic Policy of Colbert

By A. J. SARGENT, M.A., Senior Hulme Exhibitioner, Brasenose College,
Oxford; and Whateley Prizeman, 1897. Trinity College, Dublin. 1899.
viii. and 138 pp., Crown 8vo, Cloth. 35. 6d. net.

P. S. King 6- Son.

*6. Local Variations in Wages

The Adam Smith Prize, Cambridge University, 1898. By F. W.
LAWRENCE, M.A., Fellow of Trinity College, Cambridge. 1899. viii.
and 90 pp., with Index anJ 18 Maps and Diagrams. Quarto, n in.
by 8J in., Cloth. 85. 6d. net. Longmans. Green 6* Co.

STUDIES IN ECONOMICS

*7. The Receipt Roll of the Exchequer for Michaelmas Term

of the Thirty-First year of Henry II (1185)

A unique fragment transcribed and edited by the Class in Palaeogiaphy
and Diplomatic, under the supervision of the I ecturer, HUBERT HALL,
F.S.A., of H.M. Public Record Office. With 31 Facsimile Plates in
Collotype and Parallel Readings from the contemporary Pipe Roll. 1899.
vii. and 37 pp., Folio, 15 J in. by nj in., in Green Cloth. Apply to the
Director of the London School of Economics.

8. Elements of Statistics

By ARTHUR L. BOWLEY, Sc.D., F.S.S., Cobden and Adam Smith Prizeman,
Cambridge ; Guy Silver Medallist of the Royal Statistical Society ;
Newmarch Lecturer, 1897-8 ; Professor of Statistics in the University
of London. Fifth Edition, 1926. xi. and 463 pp., Demy 8vo, Cloth.
18$. net. P. S. King 6 Son.

*9. The Place of Compensation in Temperance Reform

By C. P. SANGER, M.A., late Fellow of Trinity College, Cambridge ;
Barrister-at-Law. 1901. viii. and 136 pp., Crown 8vo, Cloth. 25. 6d.
net. P. S. King <& Son.

10. A History of Factory Legislation

By B. L. HUTCHINS and A. HARRISON (Mrs. Spencer), B.A., D.Sc. (Econ.),
London. With a Preface by the Rt. Hon. SIDNEY WEBB, LL.B., M.P.
Third Edition, 1926. xvi. and 298 pp., Demy 8vo, Cloth. 95. net.

P. S. King & Son.

11. The Pipe Roll of the Exchequer of the See of Winchester
for the Fourth Year of the Episcopate of Peter Des Roches

(1207)

Transcribed and edited from the original Roll in the possession of the
Ecclesiastical Commissioners by the Class in Palaeography and Diplo-
matic, under the supervision of the Lecturer, HUBERT HALL, F.S.A.,
of H.M. Public Record Office. With a Frontispiece giving a Facsimile
of the Roll. 1903. xlviii. and 100 pp., Folio, 13 J in. by 8J in., Green
Cloth. 155. net. P. S. King & Son.

*12. Self -Government in Canada and How it was Achieved :
The Story of Lord Durham's Report

By F. BRADSHAW, B.A., D.Sc. (Econ.), London ; Senior Hulme Exhibi-
tioner, Brasenose College, Oxford. 1903. 414 pp., Demy 8vo, Cloth.
3$. 6d. net. P. S. King <& Son.

*13. History of the Commercial and Financial Relations
between England and Ireland from the Period of the
Restoration

By ALICE EFFIE MURRAY (Mrs. Radice), D.Sc. (Econ.), former Student
at Girton College, Cambridge ; Research Student of the London School
of Economics and Political Science. 1903. 486 pp., Demy 8vo, Cloth.
los. 6d. net. P. S. King & Son.

*14. The English Peasantry and the Enclosure of Common
Fields

By GILBERT SLATER, M.A., St. John's College, Cambridge ; D.Sc. (Econ.),
London. 1907. 337 pp., Demy 8vo, Cloth, ros. 6d. net.

Constable d* Co.

15. A History of the English Agricultural Labourer

By Dr. W. HASBACH, Professor of Economics in the University of Kiel,
Translated from the Second Edition, 1908, by RUTH KEN YON. Intro-
duction by the Rt. Hon. SIDNEY WEBB, LL.B., M.P. Second Impression,
1920. xvi. and 470 pp., Demy 8vo, Cloth. 125. 6d. net.

P, 5, King <& Son.

STUDIES IN ECONOMICS

16. A Colonial Autocracy : New South Wales under Governor
Macquarie, 1810-1821

By MARION PHILLIPS, B.A., Melbourne, D.Sc. (Econ.), London. 1909.
xxiii. and 336 pp., P*-ay 8vo, Cloth. los. 6d. net. P. S. King <& Son.

*17. India and the Tariff Problem

By H. B. LEES SMITH, M.A., M.P. 1909. 120 pp., Crown 8vo, Cloth.
35. 6d. net. Constable 6* Co.

*18. Practical Notes on the Management of Elections

Three Lectures delivered at the School in November, 1909, by ELLIS
T. POWELL, LL.B., D.Sc. (Econ.), Fellow of the Royal Historical and
Royal Economic Societies ; of the Inner Temple ; Barrister-at-Law.
1909. 52 pp., 8vo, Paper, is. 6d. net. P. S. King 6* Son.

*19. The Political Development of Japan

By G. E. UYEHARA, B.A., Washington, D.Sc. (Econ.), London. 1910.
xxiv. and 296 pp., Demy 8vo, Cloth. 8s. 6d. net. Constable <& Co.

20. National and Local Finance

By J. WATSON GRICE, D.Sc. (Econ.), London. Preface by the Rt. Hon.
SIDNEY WEBB, LL.B., M.P. 1910. 428 pp., Demy 8vo, Cloth. 125.
net. P. S. King 6- Son.

*21. An Example of Communal Currency : Facts about the
Guernsey Market- House

By J. THEODORE HARRIS, B.A. With an Introduction by the Rt. Hon.
SIDNEY WEBB, LL.B., M.P. 1911. xiv. and 62 pp., Crown 8vo, Paper,
is. net. P. S. King & Son.

22. Municipal Origins : History of Private Bill Legislation

By F. H. SPENCER, LL.B., D.Sc. (Econ.), London.* With a Preface by
Sir EDWARD CLARKE, K.C. 1911. xi. and 333 pp.. Demy 8vo, Cloth,
los. 6d. net. Constable <& Co.

23. Seasonal Trades

By various authors. With an Introduction by the Rt. Hon. SIDNEY
WEBB, LL.B., M.P. Edited by the Rt. Hon. SIDNEY WEBB, LL.B., M.P.,
and ARNOLD FREEMAN, M.A. 1912. xi. and 410 pp., Demy 8vo,
Cloth. 75. 6d. net. " Constable <& Co.

24. Grants in Aid : A Criticism and a Proposal

By the Rt. Hon. SIDNEY WEBB, LL.B., M.P., Professor of Public Adminis-
tration in the University of London. New (Second) Edition, 1920 ; viii.
and 145 pp., Demy 8vo, Cloth. 75. 6d. net. Longmans, Green <& Co.

25. The Panama Canal : A Study in International Law

By H. ARIAS, B.A., LL.D. 1911. xiv. and 188 pp., 2 Maps, Biblio-
graphy, Demy 8vo, Cloth, ros. 6d. net. P. 5. King & Son.

26. Combination among Railway Companies

By W. A. ROBERTSON, B.A. 1912. 105 pp., Demy 8vo, Cloth, is. 6d.
net. Paper, is. net. Constable <& Co.

*27. War and the Private Citizen : Studies in International
Law

By A. PEARCE HIGGINS, M.A., LL.D. With Introductory Note by the
Rt. Hon. ARTHUR COHEN, K.C. 1912. xvi. and 200 pp., Demy 8vo,
Cloth. 55. net. P. S. King <& Son.

*28. Life in an English Village : an Economic and Historical
Survey of the Parish of Corsley, in Wiltshire

By M. F. DAVIES. 1909. xiii. and 319 pp. Illustrations, Bibliography,
Demy 8vo, Cloth. los. 6d. net. T. Fisher Unwin.

STUDIES IN ECONOMICS

*29. English Apprenticeship and Child Labour : a History

By O. JOCELYN DUNLOP, D.Sc. (Econ.), London. With a Supplementary
Section on the Modern Problem of Juvenile Labour, by the Author and
R. D. DENMAN, M.P, 1012. 390 pp., Bibliogra^v, Demy 8vo, Cloth.
los. 6d. net. T. Fisher Unwin.

30. Origin of Property and the Formation of the Village
Community

By J. ST. LEWINSKI, D.Ec.Sc., Brussels. 1913. xi. and 71 pp., Demy
8vo, Cloth. 35. 6d. net. Constable o- Co.

*31. The Tendency towards Industrial Combination (in some
Spheres of British Industry)

By G. R. CARTER, M.A. 1913. xxiii. and 391 pp., Demy 8vo f Cloth.
6s. net. Constable & Co.

*32. Tariffs at Work : an Outline of Practical Tariff Admin-
istration

By JOHN HEDLEY HIGGINSON, B.Sc. (Econ.) ; Mitchell Student of the
University of London ; Cobden Prizeman and Silver Medallist. 1913.
150 pp., Crown 8vo, Cloth. 35. net. P. 5. King 6 Son.

*33. English Taxation, 1640-1799 : an Essay on Policy and
Opinion

By WILLIAM KENNEDY, M.A., D.Sc. (Econ.), London, Shaw Research
Student at the London School of Economics and Political Science. 1913.
200 pp., Demy 8vo. 75. 6d. net. G. Bell < Sons.

34. Emigration from the United Kingdom to North America,
1763-1912

By STANLEY C. JOHNSON, M.A., Cambridge, D.Sc. (Econ.), London.
1913. xvi. and 387 pp., Demy 8vo, Cloth. 65. net.

G. Routledge 6- Sons.

35. The Financing of the Hundred Years' War, 1337-1360

By SCHUYLER B. TERRY. 1914. xvi. and 199 pp., Demy 8vo, Cloth.
65. net. Constable 6- Co.

36. Kinship and Social Organization

By W. H. R. RIVERS, M.D., F.R.S., Fellow of St. John's College, Cam-
bridge. 1914. 96 pp., Demy 8vo, Cloth. 2s. 6d. net.

Constable (S- Co.

37. The Nature and First Principle of Taxation

By ROBERT JONES, D.Sc. (Econ.), London ; with a Preface by the Rt.
Hon. SIDNEY WEBB, LL.B., M.P. 1914. xvii. and 299 pp., Demy 8vo,
Cloth. 8s. 6d. net. P. S. King <5- Son.

*38. The Export of Capital

By C. K. HOBSON, M.A., D.Sc. (Econ.), F.S.S., Shaw Research Student
of the London School of Economics and Political Science. 1914. xxv.
and 264 pp., Demy 8vo, Cloth. 75. 6d. net. Constable <& Co.

39. Industrial Training

By NORMAN BURRELL DEARLE, M.A., D.Sc. (Econ.), London, Fellow
of All Souls* College, Oxford ; Shaw Research Student of the London
School of Economics and Political Science. 1914. 610 pp., Demy 8vo,
Cloth. los. 6d. net. P. 5. King 6* Son.

40. Theory of Rates and Fares

From the French of Charles Colson's " Transports ettarifs " (third edition,
1907), by L. R. CHRISTIE, G. LEEDHAM, and C. TRAVIS. Edited and
arranged by CHARLES TRAVIS, with an Ii troduction by Sir W. M.
ACWORTH, M.A. 1914. viii. and 195 pp., Demy 8vo, Cloth. 3$. 6d.net.

G. Bell & Sons.

STUDIES IN ECONOMICS

41. Advertising : a Study of a Modern Business Power

By C. W. GOOD ALL, B.Sc. (Econ.), London; witk an Introduction by
the Rt. Hon. SIDNEY WEBB, LL.B., M.P. 1914. xviii. and 91 pp.,
Demy 8vo, Cloth. 9 f od. net. Paper, is. 6d. net. Constable & Co.

42. English Railways : their Development and their Relation
to the State

By EDWARD CARNEGIE CLEVELAND-STEVENS, M.A., Christ Church,
Oxford, D.Sc. (Econ.). Shaw Research Student of the London School
of Economics and Political Science. 1915. xvi. and 325 pp.. Demy
8vo, Cloth. 6s. net. G. Routledge 6- Sons.

43. The Lands of the Scottish Kings in England

By MARGARET F. MOORE, M.A., with an Introduction by P. HUME BROWN,
M.A., LL.D., D.D., Professor of Ancient Scottish History and Palaeography,
University of Edinburgh. 1915. xii. and 141 pp., Demy 8vo, Cloth.
55. net. George Allen <& Unwin.

44. The Colonization of Australia, 1829-1842 : the Wakefleld
Experiment in Empire Building

By RICHARD C. MILLS, LL.M., Melbourne, D.Sc. (Econ.), with an Intro-
duction by GRAHAM WALLAS, M.A., Professor of Political Science in the
University of London. 1915. xx. and 363 pp., Demy 8vo, Cloth,
i os. 6d. net. Sidgwick &> Jackson.

45. The Philosophy* of Nietzsche

By A. WOLF, M.A., D.Lit., Fellow of University College, London ; Reader
in Logic and Ethics in the University of London. 1915. 114 pp., Demy
8vo, Cloth. 35. 6d. net. Constable <& Co.

*46. English Public Health Administration

By B. G. BANNINGTON; with a Preface by GRAHAM WALLAS, M.A.,
Professor of Political Science in the University of London. 1915. xiv.
and 338 pp., Demy 8vo, Cloth. 8s. 6d. net. P. S. King & Son.

47. British Incomes and Property : the Application of Official
Statistics to Economic Problems

By Sir JOSIAH STAMP, K.B.E., D.Sc., Guy Medalist of the Royal Statis-
tical Society, late of the Inland Revenue Department. With Illustrative
Charts. Second Edition, with supplementary tables. 1920. xvi. and
538 pp., Demy 8vo, Cloth. 155. net. P. 5. King <& Son.

*48. Village Government in British India

By JOHN MATTHAI, D.Sc. (Econ.), London ; with a Preface by the Rt.
Hon. SIDNEY WEBB, LL.B., M.P., Professor of Public Administration
in the University of London. 1915. xix. and 211 pp., Demy 8vo, Cloth.
45. 6d. net. T. Fisher Unwin.

49. Welfare Work : Employers' Experiments for Improving
Working Conditions in Factories

By E. D. PROUD (Mrs. Gordon Pavy), B.A., Adelaide ; D.Sc. (Econ.),
London ; with a Foreword by the Rt. Hon. D. LLOYD GEORGE, M.P.
1916. Third edition, 1918 ; xx. and 368 pp., Demy 8vo, Cloth.
8s. 6d. net. George Bell 6* Sons.

50. The Development of Rates of Postage

By A. D. SMITH, D.Sc. (Econ.), London, F.S.S., of the Secretary's Office,
General Post Office ; with a;i Introduction by the Rt. Hon, Sir HERBERT
SAMUEL, Postmaster-General, 1910-4 and 1915-6. 1917. xii. and 431
pp., Demy 8vo, Cloth. i6s. net. George Allen <& Unwin.

STUDIES IN ECONOMICS

51. Metaphysical Theory of the State

By L. T. HOBHOUSE, M.A., Martin White Professor of Sociology in the
University of London. 1918. 156 pp., Demy 8vo, Cloth. JS. 6d. net.

^eorge A lien <& Unwin.
52. Outlines of Social Philosophy

By J. S. MACKENZIE, M.A., Professor of Logic and Philosophy in the
University College of South Wales. 1918. 280 pp., Demy 8vo, Cloth.
los. 6d. net. George Allen 6* Unwin,

53. Economic Phenomena Before and After War

By SLAVKO SE<$EROV, Ph.D., M.Sc. (Econ.), London, F.S.S. 1919. viii.
and 226 pp., Demy 8vo, Cloth, xos. 6d. net. G. Routledge <& Sons.

54. Gold, Prices, and the Witwatersrand

By R. A. LEHFELDT, D.Sc., Professor of Economics at the South African
School of Mines and Technology, Johannesburg (University of South
Africa) ; Correspondent for South Africa of the Royal Economic Society.
1919. 130 pp., Crown 8vo, Cloth. 55. net. P. S. King & Son.

55. Exercises in Logic

By A. WOLF, M.A., D.Lit., Fellow of University College, London ; Reader
in Logic and Ethics in the University of London. 1919. 78 pp., Foolscap
8vo, Limp Cloth. 35. net. George Allen & Unwin.

56. The Working Life of Women in the Seventeenth Century

By ALICE CLARK, Shaw Research Student of the London School of Eco-
nomics and Political Science. 1919. (7) 355 pp., Demy 8vo, Cloth.
105. 6d. net. G. Routledge 6- Sons.

57. Animal Foodstuffs : with special reference to the British

Empire and the Food Supply of the United Kingdom
By E. W. SHANAHAN, M.A., New Zealand ; D.Sc. (Econ.), London. 1920.
viii. and 331 pp., Demy 8vo, Cloth. IQS. 6d. net. G. Routledge dx Sons.

58. Commercial Advertising

A course of Lectures given at the School. By THOMAS RUSSELL, President
of the Incorporated Society of Advertisement Consultants ; sometime
Advertisement Manager of " The Times." 1919 (reprinted 1920). x. and
306 pp., Demy 8vo, Cloth. los. 6d. net. G. P. Putnam's Sons.

59. The Inequality of Incomes in Modern Communities

By HUGH DALTON, M.A., King's College, Cambridge; D.Sc. (Econ.),
London ; Barrister-at-Law of the Middle Temple ; Cassel Reader in
Commerce in the University of London. 1920. xii. and 360 pp., Demy
8vo, Cloth. los. 6d. net. G. Routledge 6 Sons.

60. History of Social Development

From the German of F. Muller-Lyer's " Phasen der Kultur," 1908, by
E. C. LAKE and H. A. LAKE; B.Sc. (Econ.), London, F.R.A.I. With
an Introduction by Professors L.T. HOBHOUSE and E. J. URWICK. 1920.
362 pp., Demy 8vo, Cloth. i8s. net. George Allen & Unwin.

61. The Industrial and Commercial Revolutions in Great
Britain during the Nineteenth Century

By LILIAN C. A. KNOWLES, Litt.D., Dublin ; Hist. Tripos and Law
Tripos, Girton College, Cambridge; Reader in Economic History in
the University of London. 1921. xii. and 412 pp., Crown 8vo, Cloth.
6s. 6d. net. G. Routledge <& Sons.

62. Tariffs : a Study in Method

By T. E. G. GREGORY, B.Sc. (Econ.), London ; Sir Ernest Cassel Reader
in Commerce in the University of London! 1921. xv. and 518 pp.,
Demy 8vo, Cloth. 255. net. Charles Griffin 6* Co.

STUDIES IN ECONOMICS

63. The Theory of Marginal Value

Nine Lectures delivered at the School in Michaelmas Term, 1920. By L. V.
BIRCL., M.A., D.Ec.Sc., Professor of Economics and Hnance in the Univer-
sity of Copenhagen. 1922. viii. and 351 pp., Demy 8vo, Cloth. 145. net.

G. Routledge 6* Sons.

64. The Principle of Official Independence

By ROBERT MCGREGOR DAWSON, M.A., D.Sc. (Econ.). With an Intro-
duction by GRAHAM WALLAS, M.A., Professor of Political Science in the
University of London. 1922. xvi. and 272 pp., Demy 8vo, Cloth.
105. bd. net. P. 5. King & Son.

65. Argonauts of the Western Pacific

An Account of Native Enterprise and Adventure in the Archipelagos of
Melanesian New Guinea. By BRONISLAW MALINOWSKI, D.Sc. (London),
Ph.D. (Cracow) ; Preface by SIR JAMES GEORGE FRAZER, F.B.A., F.R.S.,
1922. xxxii. and 527 pp., Demy 8vo, Cloth. 21$. net.

G. Routledge Sows.

66 .The First Principles of Public Finance

By HUGH D ALTON, M.A., King's College, Cambridge; D.Sc. (Econ.);
Barrister-at-Law of the Middle Temple ; Cassel Reader in Commerce in
the University of London. 1922. xii. and 208 pp., Crown 8vo, Cloth.
55. net. G. Routledge & Sons.

67. Commercial Relations between India and England

By BAL KRISHNA, Ph.D. (Econ.), London, M.A., F.S.S. ; Principal, Rajaram
College, Kolhapur, Bombay. 1924. 392 pp., Demy 8vo, Cloth. 145.
net. G. Routledge & Sons

68. Wages in the Coal Industry

By J. W. F. ROWE, B.A., Cambridge. 1923. viii., 174 pp., Demy 8vo,
Cloth. 105. 6d. net. * P. S. King & Son.

69. The Co-operative Movement in Japan

By KIYOSHI OGATA, Ph.D., Professor of Special Department of Commerce
in the University of^Commerce, Tokyo. Preface by the Rt. Hon. SIDNEY
WEBB, LL.B., M.P. 1923. xv., 362 pp., Demy 8vo, Cloth. 125. 6d. net.

P. 5. King <S Son.

70. The British Trade Boards System

By DOROTHY SELLS, M.A., Ph.D. 1923. vii., 293 pp., Demy 8vo, Cloth.
125. 6d. net. P. 5. King <&> Son.

71. Second Chambers in Theory and Practice

By H. B. LEES-SMITH, M.A. Lecturer in Public Administration at the
London School of Economics. 1923. 256 pp., Demy 8vo, Cloth. 75. 6d.
net. George Allen 6* Unwin.

72. Chinese Coolie Emigration to Countries within the British
Empire

By PERSIA CRAWFORD CAMPBELL, M.A. (Sydney) ; M.Sc. (Econ.), Lon-
don ; British Fellow of Bryn Mawr College, U.S.A., 1922-23. Preface
by Hon. W. PEMBER REEVES, Ph.D. 1923. xxiii., 240 pp., Demy 8vo,
Cloth. 105. 6d. net. P. 5. King <5* So*.

73. The Rdle of the State in the Provision of Railways

By H. M. JAGTIANI, M.Sc., Barrister-at-Law. With an Introduction by
Sir WILLIAM ACWORTH, K.C.S.I. 1924. xii., 146 pp., Demy 8vo, Cloth.
85. 6d. net. P. S. King <S* Son.

74. Dock Labour and Decasualisation

By E. C. P. LASCELLES an^ S. S. BULLOCK. 1924. xii., 200 pp., Demy
8vo, Cloth. los. 6d. net. P. 5. King 6- Son.

8 STUDIES IN ECONOMICS

75. Labour and Housing in Bombay

By A. R. BURNETT-HURST, M.Sc. (Econ.), London ; Professor, and Dean
of the Faculties of Commerce and Economics, University of Allahabad.
With a Foreword by SIR STANLEY REED, Kt., K.B.E., LL.D. 1925.
xiv. and 152 pp., with many illustrations and a *^ap of Bombay City.
Demy 8vo, Cloth. 105. od. net. P. 5. King dy Son.

76. The Economic Development of the British Overseas

Empire

By L. C. A. KNOWLES, M.A., Litt.D., Trinity Coll., Dublin. 1924. xvi.
and 555 pp., Demy 8vo. Cloth. los. 6d. net. G. Routledge & Sons,

77. Unemployment Relief in Great Britain : A Study in State

Socialism

By FELIX MORLEY. 1924. xvii. and 204 pp., Large Crown 8vo, Cloth.
6s. net. G. Routledge 6* Sons.

78. Economic Conditions in India

By P. PADMANABHA PILLAI, B.A., B.L., Ph.D. (Econ.), F.R.Hist.S.,
F.R.Econ.S., Member of the Economic and Financial Section, League of
Nations Secretariat, Geneva; with an Introductory Note by GILBERT
SLATER, M.A., D.Sc. (Econ.). 1925. xxviii. and 330 pp., Demy 8vo,
Cloth. 125. 6d. net. G. Routledge & Sons.

79. The Law Relating to Public Service Undertakings
By F. N. KEEN, LL.B., Barrister-at-Law, of the Middle Temple and the
Parliamentary Bar. 1925. xii. and 320 pp., Demy 8vo, Cloth. 155. net.

P. 5. King & Son.

80. Social Aspects of the Business Cycle

By DOROTHY SWAINE THOMAS, A.B., Columbia ; Ph.D. (Econ.), London ;
Hutchinson Research Medallist of the London School of Economics.
1925. xvi., 217 pp., Demy 8vo, Cloth. los. 6d. net.

G. Routledge & Sons.

81. Capitalist Enterprise and Social Progress.
By MAURICE HERBERT DOBB, B.A., Cambridge; Research Student of
the London School of Economics. 1925. x., 410 pp., Demy 8vo, Cloth.
I2S. 6d. net. G. Routledge <S* Sons.

82. Has Poverty Diminished ?

By ARTHUR L. BOWLEY, Sc.D., Professor of Statistics in the University
of London, and MARGARET H. HOGG, M.A. 1925. viii., 236 pp.. Demy 8vo,
Cloth. 105. 6d. net. P. S. King <& Son.

83. Some Problems of Wages and their Regulation in Great

Britain since 1918

By ALLAN G. B. FISHER, Ph.D. 1926. xviii., 281 pp., Demy 8vo, Cloth.
125. 6d. net. P. S. King <& Son.

84. Factory Legislation and its Administration
By HENRY A. MESS, B.A. 1926. xii., 228 pp., Demy 8vo, Cloth.
125. 6d. net. P. S. King 6* Son.

85. Economic Development of Russia

By MARGARET S. MILLER, MiA., B.Com., Ph.D., Carnegie Research
Scholar, London School of Economics; Lecturer in the Dept. of Com-
merce, University of Liverpool. 1926.' xviii., 311 pp., Demy 8vo, Cloth.
125. 6d. net. P. S. King Son.

86. Wages and the State.

By E. M. BURNS, B.Sc., Assistant Lecturer at the London School of
Economics. 1926. x., 443 pp., Demy 8vo, Cloth. 165. net.

P. S. King & Son.

87. The Origin and Early History of Insurance, including the

Contract of Bottomry.

By C. F. TRENERRY, B.A., D.Sc. 1926. xiv., 330 pp., Demy 8vo f
Cloth. 155. net. P. S. King <& Son.