Railroads of the Raj & Now: Logistics design is the foundational support to Trade

Dave Donaldson’s seminal paper, “Railroads of the Raj", is an economic analysis of the benefits that Railroad brought into India in the period 1853 to 1930, the period that saw an exponential progress of 67247 km of rail network expansion into India’s heartland (also current Pakistan) covering 232 districts.

When today’s major infrastructure projects get conceived, it is short on scale and size of thinking, whereas the benefits look so obvious that even staunch opponents of imperialism would agree that the British built the backbone of the country through the railroad that did four things:

1. Brought down Trade costs
2. Increased Trade Flows: Both inter-regional and international
3. Increased Real Income
4. Improved welfare

Unification of the country was better ushered by the railroad than anything else.

Think of it, that the only transportation available for bulk goods was bullock carts which could not even do more than 30 km a day and the better alternative was river transport, in Ganges or Brahmaputra, where one could aim for 60 km a day. But river transport was restrictive in scope looking at the vastness of India.

The railroad brought in 600 km per day of movement of goods and the costs became a fraction of that by the other alternatives, mainly bullock cart and waterways.

India’s economy was 66% agricultural and most of the produce from one part when transported to the other part got wasted in the journey itself when moved by bullock carts. The cost of wastage was so prohibitive that one would not even think of transporting. The trade routes within India therefore remained more for non-agricultural commodities and non-perishables.

The movement by other means was also constrained by quantity and thus there was loss in the scale and size of movement, capacity building was constrained by this aspect. The poor of India, for whom agriculture was the only economic activity, suffered due to extreme costs of distribution of the produce, something that has found very lukewarm response from the economic analysis.

If the farm produce involved cost of X, the cost of transportation was several times X, this aspect was first discovered and transformed given that the railroad alternative was possible. The reason why the most populous places of India had the biggest railroad expansion, was because the agricultural produce could be transported as that was initially the only bulk trading channel that needed to be developed. This included cash crops as well, cotton being one of the prime ones for international trade.

The industrial expansion followed suit with the starting of Steel production in the beginning of the Twentieth Century. But by then the basic infrastructure was in place.

Trade flows need basic infrastructure to reduce costs of distribution, here supply created demand. But we should not also forget that India did not have the basics to start the industrial activities, even for building an industrial plant required importing of goods, which without an infrastructure within India would have cost exorbitantly.

The global trade in the last part of the nineteenth century already reduced cost of transporting trans-Atlantic and Trans-pacific sea voyages and the Suez canal dramatically changed the costs from and into East. But cost of transportation within India was so huge that the railroad created the backbone.

The increase in the real income due to railroad, is not to be lost sight of, this was one of the fundamental drivers of change in India, that created the middle class and the thriving community of traders within India who benefitted from the reduction in costs in transportation.

The welfare advantage was missed by many as India had other things to contend with like effect of monsoon, which played havoc and the incidence of famines due to hoarding.

But I find a strange similarity in the conditions of today, when lack of distribution causes much of the overall costs to go up and whether could we do better through infrastructure. The role of infrastructure in furthering the cause of welfare is missed out even today. Here we need to think strategically that if some markets are dispersed and some are concentrated and the source of inputs are so placed geographically that some are disproportionately disadvantaged over the other, we can actually make a huge difference by moving the infrastructure lever; source of inputs, manufacturing location and the markets geographically has a lot of optimization to be done in terms of total costs, including transportation.

The central architecture of logistics in the country provides some important support to some of the fledgling industries including agriculture, where there are intrinsic infirmities in terms of cost dis-advantages; if some are closer to the market, they could be far away from the source of inputs and vice versa.

Central logistics structure of the country changes these aberrations, they provide foundational support to costs and trade. Trade directly impacts real income and welfare; here the example of railroad provided by the Raj stands out as a brilliant example, which could be relevant even today.

The Golden Quadrilateral conceived by Vajpayee Government, which happened on the road side, is the only parallel example we can think of in recent times. The Chinese Silk-Route is a grand design at the global level that will change trade and real income of billions of people.