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Sansad TV: Milestones Series- Nationalisation of Railways




Nationalised in 1951, Indian Railways is today the largest rail network in Asia and the world’s second largest network operated under a single management. With more than one million employees, IR is the seventh largest employer in the world. Four sites of Indian Railways have been declared as “World Heritage sites” by UNESCO. These are Darjeeling, Himalayan Railway inscribed in 1999, Mumbai CST Building inscribed in 2004, Nilgiri Mountain Railways inscribed in 2005 and Kalka-Shimla Railways inscribed in 2008. Indian railways has also entered a select club of railways that includes China, Russia and USA in carrying more than one billion tons of freight annually.


  • It was in 1951, Indian Railwayswas formed, under Ministry of Railways, as an Organisation, after it was nationalized.
  • In 1951, all the existing companies like, Great India Peninsular Railway, Bengal Railway, etc, were nationalized to form Indian Railways. This made Indian Railways to become one of the largest railway systems in world
  • Actually the nationalization of the Indian Railway system had begun much earlier than the official date in 1951.
  • The major railways: the GIP, BBCI,ER, and MSM were partly Govt. owned and almost fully by the time of independence.
  • Only the systems which had been built by the princely states, the Bengal Nagpur Railway, the South Indian Railways remained in private hands.
  • However the Government of India took the decision in 1950 to bring all the railways under full Govt. control, mainly for better co-ordination in the expansion activities which were to follow independence of the country.
  • Besides it had become necessary to build all the rolling stock requirements for the railways in the country instead of depending on imports.
  • So the CLW was established in 1950, the Integral Coach Factory in 1955 by the Govt. for manufacture of BG rolling stock and the MG requirements were to be supplied by private suppliers.
  • Thus MG steam locos were built by Tata Engg a Loco Co. (TELCO later re-christened Tata Motors after the manufacture of steam locos was stopped) and coaches and wagons were supplied by Jessops and Burn Co. etc.

Recent phenomenon of private investment in Railways:

  • Opens opportunity for returns from investmentin Rail Projects.
  • Improved Infrastructure – It will lead to better infrastructure which in turn would lead to improved amenities for travelers.
  • People’s expectation has changed and we need to cope up with those so private investment is the way for providing higher services.
  • Lesser Accidents
  • Rails will remain the same, the signaling will remain the samebutt interface with public and rolling stock have a substancial change.
  • Augmentation of railway infrastructure and decongestion of the railways.
  • Ensure timely availability of Rail Infrastructure to the beneficiaries viz. Port, Industry and States.
  • Better maintenance and efficiency in implementation of projects.
  • It leads to simplification of cost recovery for the money spent by the government in setting up the infrastructure. It would be profitable as the government would charge the operator
  • The move would foster competition and hence lead to overall betterment in the quality of services.


  • Absence of independent regulator in the railway sector. In the absence there are chances of litigation or other issues as cropped up in the road sector.
  • Government has water, river, health and education to look for and therefore limited finance available for railways.
  • No past experience in the PPP modelfor the implementation of projects for railways.
  • Fares:Given that a private enterprise runs on profit, it is but natural to assume that the easiest way of accruing profits in Indian Railways would be to hike fares, thus rendering the service out of reach for lower income groups.
  • Trade Unions.
  • Affects socio-economic development: This will defeat the entire purpose of the system which is meant to serve the entire population of the country irrespective of the level of income
  • Accountability: Private companies are unpredictable in their dealings and do not share their governance secrets with the world at large.

Way Forward:

  • Privatisation of railways operations will require a new institutional frameworkwhere infrastructure will remain as a government’s monopoly while thewre would be a market of service providers.
  • It is important to modernize the railways, so measures must be taken to reimburse the social costs speedily so that resources of the railways is better allocated and facilities are upgraded from time to time.
  • Core Railways functionscan be Corporatized rather than privatized.
  • However, unlike publicly traded companies, the government is the company’s only shareholder, and the shares in the company are not publicly traded.
  • The peripheral function of railways (cleanliness, ticket disposal, traveller’s amenities), must be privatized