[op-ed snap] The non-trivial costs of a slow judiciary

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Mains Paper 2: Polity | Structure, organization & functioning of the Executive & the Judiciary

From UPSC perspective, the following things are important:

Prelims level: EODB report, Economic Survey

Mains level: Measures required to improve EODB ranking of India


Context

Effects of judiciary on various processes

  1. Efficient courts are the backbone of the modern, hyper-specialized economy
  2. A sound judiciary is a key to enforcing laws and creating trust in the economy
  3. It allows economic exchange between complete strangers by deterring fraud and increasing the incentives for fair play

Consequences of a slow judiciary

  1. A slow judiciary with a large number of pending cases reduces trust in the economy
  2. It also makes people fearful

Reducing pendency critical for Ease of doing business

  1. The Economic Survey 2017-18 has made a compelling argument that addressing pendency, delays and backlogs in the appellate and judicial arenas is very crucial
  2. It is the next frontier for improving ease of doing business (EODB) in the country

EODB report by the World Bank

  1. India ranked a dismal 164 in the category of enforcing contracts in latest EODB report
  2. It takes, on average, almost four years to enforce a standard sales agreement in a local court
  3. It also costs up to 31% of the claim’s value

Direct correlation with judicial capacity

  1. India’s poor ranking in enforcing contracts relates directly to its judicial capacity
  2. A slow judiciary forces participants to adopt loss-minimizing strategies that are not always efficient

What does this lead to?

  1. This result in the cost structure of the entire economy to go up
  2. People start including risk premium in the original cost of transactions
  3. It also deters firms from making relationship-specific investments
  4. These are the investments for products that have lower value in alternative uses than they have in the intended use between the parties involved

Developing ways around this problem

  1. In many industries, firms vertically integrate in order to align their incentives in the different stages of production
  2. Sellers require a security amount from the buyer
  3. Firms rely on repeat business and reputation norms to discipline the actors
  4. Some industries also follow private rules and use private tribunals to solve disputes

Research confirms this phenomenon

  1. A research on 25 Indian states and Union territories from 1971 to 1996 found that a weak judiciary has a negative effect on economic and social development
  2. The location of a contract-intensive industry in a state having faster courts is highly predictive of its future growth

Effects of weak judiciary on other spheres

  1. A weak judiciary has a negative effect on economic and social development
  2. It leads to
  • lower per capita income
  • higher poverty rates
  • lower private economic activity
  • poorer public infrastructure
  • higher crime rates and
  • more industrial riots

Way forward

  1. The present government has been vocal about improving India’s EODB ranking
  2. It should pay heed to the recommendations in the Economic Survey
  3. Efforts should be made to decrease judicial pendency and increasing number of judges across all courts

Back2Basics

Ease of Doing Business report

  1. It is published by World Bank
  2. Economies are ranked on their ease of doing business, from 1–190
  3. A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm
  4. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas
  5. The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle
Judicial Pendency
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