Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.

Contract Enforcement in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : EODB

Mains level : EODB in India

Ease of doing business in India remains low, dragged down by the way contracts are enforced in the country. Recent reforms have improved the business climate somewhat, but there is a long way to go.

What is the Ease of Doing Business index?

  • It is an index designed by the World Bank to rank 190 economies.
  • A higher rank (closer to 1) means the country’s regulatory environment is favourable to business operations.
  • India was ranked 63rd in the overall index in 2020.
  • World Bank has now discontinued the Doing Business index.

Indicators used

The ranking is calculated on the basis of indicators such as:

  1. Starting a Business
  2. Dealing with Construction Permits
  3. Getting Electricity
  4. Registering Property
  5. Getting Credit
  6. Protecting Minority Investors, Paying Taxes
  7. Trading across Borders
  8. Enforcing Contracts and
  9. Resolving Insolvency

How is ‘Enforcing Contracts’ measured?

  • In 2020, in the parameter of ‘Enforcing Contracts’, India was ranked 163rd, against 186th in 2015. The parameter considers time, cost and quality of the judicial process.
  1. Time considers the number of days to resolve a commercial dispute in courts;
  2. Cost measures the expenses of attorney, courts and enforcement as a percentage of claim value; and
  3. Quality considers the use of best practices which can promote efficiency and quality i.e., court proceedings, case management, alternative dispute resolution and court automation.
  • Each of the three indicators have a 33.3% weightage.

How is India doing on this parameter now?

  • At 163rd position in 2020, the country continues to struggle, with the time taken to resolve a commercial dispute being approximately 1,445 days in the Doing Business Report 2020.
  • However, as of August 2022, law ministry data shows a marked improvement of close to 50% in days taken to resolve a dispute to 744 days in New Delhi and 626 days in Mumbai.

What are some of the reforms undertaken?

  • The Department of Justice, the nodal point for ‘Enforcing Contracts’ indicator along with the eCommittee of the Supreme Court, has undertaken a series of reforms.
  • Some of the steps include the establishment of dedicated commercial courts with monetary jurisdiction up to ₹3 lakh.
  • There also exists online case filing, e-payment of court fees, electronic case management, special courts for infrastructure project contracts, as well as automatic and random allocation of commercial cases thereby eliminating human intervention.

What further steps are required?

  • An efficient judiciary instils confidence in investors and signals the commercial viability of transactions.
  • The number of court hearings should be minimized too; often, lawyers have an incentive to stretch out the process.
  • The judicial system should encourage out-of-court settlements through the respective lawyers as practised in advanced countries.
  • It is equally important that the judiciary leaves matters relating to economic governance to governments.

 

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