Japan was the first country in the world to embark on reform of its railways in 1987. Some say that the process is still continuing as some of the Japanese Railways (JR) have still to be sold off. However, unlike some other countries, the reform in Japanese Railways is generally considered a success story.

The Railway lines were first constructed in Japan in 1872, i.e., nineteen years after India. By 1981, the Japanese National Railways (JNR) operated 21,418 kms of truck. In addition, more than 5000 kms were owned and operated by private railways. The private railways mainly operated commuter lines. Some basic data about JNR before reforms and after reforms is given in Table 5.1.

Some facts about Japan and Japanese Railways are relevant. Railways in Japan have a very small share in total transport business of the country. In 1990, Railways held only 5 per cent of the total transport market. About 50 per cent of the transport business was held by highways and 45 per cent by coastal shipping. Most of the bulk goods moved by coastal shipping and finished goods by road. Further, in the railway sector itself, it is the passenger traffic which overwhelmingly predominates. The reason for this is obvious. The population in Japan is highly concentrated in about 20 per cent of the land and is spread along the railway lines. The highest concentration is around three cities – Tokyo, Nagoya and Osaka. Therefore, there is predominance of short distance commuter traffic. Since Japan is a small country with good air connections, the long distance passenger traffic is rather small, largely on the Shinkansen routes. Thus, as far as role models go, there cannot be more dissimilar models than Japanese Railways and Indian Railways.

The JNR faced strong competition for passenger traffic from more than a hundred private railway companies operating railway lines parallel to JNR lines. But unlike JNR, the private railways not only run railway passenger services, they had also diversified into other related businesses such as real estate, hotels, amusement parks, retail etc. with the intention of attracting as much passenger traffic as possible to their railways and earning revenues from other activities. In some private railway companies earnings from other business activities far exceeded their earnings from railways.