What do you understand by the Guarantee System in Indian Railways? Discuss its role in the initial years of Indian Railways.

In the year 1853, the Great Indian Peninsular Company started the rail service from Bombay to Thane during the governor generalship of Lord Dalhousie. In 1854, the East India Rail Company launched railway service from Howrah to Pandua. The main purpose of railway development was their own interest. They never thought of the economical enrichment of India. The railway development has four different phases.Guarantee system

To attract more private players in rail network development, the British Company decided to provide some assurance to the companies. The assurance system was known as the Guarantee system.

First Guarantee System

The First guarantee system was in operation from 1849 to 1869. The key points of the system were the following

  • The government provided free land to the companies for rail network development.
  • The government gave assurance of providing a 5% interest in the annual investment of the companies.
  • It was decided the profit would be distributed between the two parties.
  • The government could buy them after a certain period of time.

But due to the increase in the expenditure of the government, the system was discontinued.

Second Phase of the Guarantee system

After the cessation of the first guarantee system, the development of railways stopped. That is why another guarantee system was launched in 1880.

  • The companies were assigned the responsibility of only development and maintenance.
  • The interest rate was reduced to 3.5%.

With this system, the government earned a huge profit and the development of the railway continued.

Other important developments

In 1905, the Rail board was constituted. In 1919, the Acworth committee was constituted with the objective of rail network development as well as administrative reforms.

Question for UPSC Mains:
What do you understand by the Guarantee System in Indian Railways? Discuss its role in the initial years of Indian Railways.

Published: February 6, 2016 | Modified:September 24, 2020

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