What was the Guarantee System? What were Guaranteed Railways?
In the 1840s, when the first proposals for railways in India were being debated in Great Britain, there was intense lobbying in support of these proposals by banks, traders, shipping companies, and others who had a strong interest in seeing railways be formed in India. These supporters prevailed upon the British Parliament to create the Guarantee System, whereby any company that constructed railways in India was guaranteed a certain rate of interest on its capital investment. This guarantee was honoured by the East India Company which then controlled large parts of India. The railways that were formed with such agreements governing them were called guaranteed railways. Typically, the guarantee was for a return of 5% annually, and the right for the railway company to pull out of the venture and get compensation from the government at any time.
