DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY,

LUCKNOW (U.P.)

SESSION 2016-2021

LAW AND ECONOMICS

FINAL DRAFT:

IMPACT OF SLOW JUDICIARY ON ECONOMY

SUBMITTED TO: SUBMITTED BY :

Dr. Shakuntla Sangam Sankalp Patel

Assistant Professor (Law) Section ‘B’

RMLNLU (U.P.) Roll No. 160101131

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ACKNOWLEDGEMENT

“Words can never convey what deeds have done.”

Writing a project on any topic is never a single man’s job. I am overwhelmed in all humbleness
and gratefulness to acknowledge my depth to all those who have helped me to put these ideas, well
above the level of simplicity and into something concrete.

I am very thankful to Prof. Dr.Shakuntla Sangam for her valuable help. She was always there to
show me the right track when I needed his help. With the help of his valuable suggestions, guidance
and encouragement, I was able to complete this project.
I would also like to thank my friends, who often helped and gave me support at critical junctures
during the making to this project.

I hope you will appreciate the hard work that I have put in this project work

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TABLE OF CONTENTS

⮚ INTRODUCTION…………………………………………………………………………….4

⮚ IMPACT OF SLOW JUDICIARY ON ECONOMY………………………………………4

⮚ OTHER IMPACTS………………………………………………………………..………….5

⮚ SOME OTHER ISSUES……………………………………………………………………...7

⮚ SUGESTIONS………………………………………………………………………………...9

⮚ CONCLUSION……………………………………………………………………………….10

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INTRODUCTION

Well-functioning formal judicial institutions are important for economic development. Efficient
courts are the backbone of the modern economy. A sound judiciary is key to enforcing laws and
creating trust in the economy, allowing economic exchange between complete strangers by
deterring fraud and increasing the incentives for fair play. Unsurprisingly, then, when the justice
system breaks down, the consequences are bad.

IMPACT OF SLOW JUDICIARY ON ECONOMY:

A slow judiciary with a large number of pending cases reduces trust in the economy and makes
people fearful. The Economic Survey 2017-18 has, therefore, made a compelling argument that
addressing pendency, delays and backlogs in the appellate and judicial arenas is the next frontier
for improving ease of doing business (EODB) in the country.

This is urgent. In the latest EODB report by the World Bank 1, India ranked a dismal 164 in the
category of enforcing contracts. It takes, on average, almost four years to enforce a standard sales
agreement in a local court, and costs up to 31% of the claim’s value. This is much higher than the
average for South Asia (three years) and China (a year and four months), and has crippling effects
on the dispute resolution mechanism of the economy.

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

The most intuitive result is for the cost structure of the entire economy to go up. For example,
landowners have to increase the rent significantly or ask the tenant to deposit a security amount to
cover the risk due to the insecurity created by a weak judiciary. Similarly, the interest rates on

1World Bank. 2020. Doing Business 2020. Washington, DC: World Bank. DOI:10.1596/978-1-4648-1440-2.
License: Creative Commons Attribution CC BY 3.0
<http://documents.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-
Business-Regulation-in-190-Economies.pdf>

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credit are higher in an economy with poor enforcement, due to the inclusion of a risk premium by
the lender.

Second, it deters firms from making relationship-specific investments—investments for products

that have lower value in alternative uses than they have in the intended use between the parties
involved. For example, a company supplying especially treated ash-less coal to a power generation
company has made investments that are less valuable in alternative uses. In such transactions, once
the coal supplier has made the initial investment, he is in a vulnerable position should the power
company change the terms of the contract. The threat of hold-ups can dissuade efficient
investments, and could even rule out exchanges that are potentially valuable.

Firms and industries have developed ways around this problem. In many industries, firms
vertically integrate in order to align their incentives in the different stages of production, or sellers
require a security amount from the buyer. Integration, however, increases the cost of starting a
business and makes the industry less competitive. Vertical integration also reduces the focus on
becoming more competitive in their development and achieving economies of scale. Firms also
rely on repeat business and reputation norms to discipline the actors, and these norms work fairly
well. Lastly, some industries follow private rules and use private tribunals to solve disputes. The
diamond traders, for example, punish non-compliance with punishment that could lead to the
ostracization of the individual from further practice. But these tribunals are only available to a
homogenous group of people, and do not work for most of the complicated exchanges that are
characteristic of a modern economy.

Other impacts:

● A slow judiciary with a large number of pending cases reduces trust in the economy and
makes people fearful.
● It delays contracts enforcement, thereby impinging business. India rank poorly in the
category of enforcing contracts. It takes, on average, almost 4 years to enforce a standard
sales agreement in a local court, and costs up to 30% more.
● A slow judiciary forces participants to adopt loss-minimizing strategies that are not always
efficient resulting in rise in the costs of goods and services. E.g. Landowners have to

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 increase the rent significantly or ask the tenant to deposit a security amount to cover the
risk due to the insecurity created by a weak judiciary.
● It deters firms from making investments in the nation due to low confidence and time to
resolve disputes if arise.

A weak judiciary has a negative effect on economic and social development, which leads to lower
per capita income, higher poverty rates, lower private economic activity, poorer public
infrastructure and higher crime rates.

Judicial effectiveness varies considerably throughout the country, and this has allowed researchers
to measure the impact of a slow judiciary on various outcomes. In a research paper published in
February 2017, Amrit Amirapu 2 demonstrates that the location of a contract-intensive industry—
an industry that requires more relationship-specific investments—in a state having faster courts is
highly predictive of its future growth: “for an industry in the 75th percentile of contract intensity,
an improvement of one standard deviation in court efficiency would imply a higher annual growth
rate of gross value added of 0.9 percentage points. This is a very large effect, since the average
annual growth rate in the sample is 2% per year. Similar results hold for growth in employment,
profits and net entry of factories, where all outcome variables are taken from the Annual Survey
of Industries (ASI) and represent the entire formal manufacturing sector from 1999 to 2008."

Similar research on 25 Indian states and Union territories from 1971 to 1996 found that a weak
judiciary (defined by the speed and predictability of the trial outcome) has a negative effect on
economic and social development, which leads to: lower per capita income; higher poverty rates;
lower private economic activity; poorer public infrastructure; and higher crime rates and more
industrial riots.

The problem of pendency has become worse in the last decade as the average percentage of cases
under trial in state high courts and lower courts increased from 82.8% to 84.81% in the previous

2 Amrit Amirapu, ‘Justice delayed is development denied: The effect of slow courts on economic outcomes in India’,

Ideas for India, May 3, 2020, https://www.ideasforindia.in/topics/governance/justice-delayed-is-development-denied-

the-effect-of-slow-courts-on-economic-outcomes-in-india.html

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decade. In 1987, the law commission had recommended increasing the number of judges from 10
judges per 10 lakh people then to 50. The figure stood at only 18 in 2016.

SOME OTHER ISSUES

Delay is mainly seen as an HR issue -appoint more judges and delay will automatically reduce. By
blaming delay solely on inadequate capacity, neither the judiciary nor the government is asking
the hard questions: What are the mindsets within the judiciary that allow a culture of delay to
fester?

As of September 30, 20163, the Supreme Court has nearly 61,000 pending cases, official figures
say. The high courts have a backlog of more than 40 lakh cases, and all subordinate courts together
are yet to dispose of around 2.85 crore cases. At all three levels, courts dispose of fewer cases than
are filed. The number of pending cases keeps growing, litigants face even dimmer prospects of
their cases being disposed of quickly.

This is the trend across the country. In high courts, 94 per cent of cases has been pending for 5-15
years. In Allahabad, the country's largest and by many accounts, an inefficient court, 925,084 cases
are pending. On an average, cases take three years and nine months to get disposed. In Delhi HC,
considered publicly as one of the best, 66,281 are pending. It takes an average of two years and
eight months to give its verdict in a case. To be fair, delays are not a peculiarly Indian phenomenon.
Many advanced countries struggle to provide quick, high-quality justice to citizens. But in India
the scale of the problem is unprecedented.

Focusing on capacity alone won't reduce delays. A pervasive reason for delays is adjournments. A
study by the Vidhi Centre for Legal Policy (VCLP) conducted on Delhi HC found that in 91 per
cent of cases delayed over two years, adjournments were sought and granted.
Merely increasing the number of judges won't help because adjournments are acceptable in our
judicial system. These encourage delaying tactics, block judicial time, prevent effective case

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Arghya Sengupta, ‘Hidden factors that slow our courts and delay justice’, Economic Times, May 4, 2020,
https://m.economictimes.com/news/politics-and-nation/hidden-factors-that-slow-our-courts-and-delay-
justice/articleshow/57887726.cms

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management and impoverish litigants. They deter many from seeking access to formal justice.
Apart from the lawyers, who often charge per hearing, none benefits.

An initiative by VCLP -Justice, Access and Lowering Delays in India (Jal di) -seeks to address the
problem. It talks of reducing government litigation, compulsory use of mediation and other
alternative dispute resolution mechanisms. It mentions simplifying procedures, recommending
precise capacity reinforcements and use of technology. The goal is to find a way to clear all backlog
in the courts within six years. This isn't unrealistic. In Singapore, the implementation of similar
reforms in the 1990s led to astonishing results, 95 per cent of civil and 99 per cent of criminal
cases were disposed of in 1999. The average length of commercial cases fell from around six years
in the 1980s to 1.25 years in 2000. The pending cases count hasn't grown substantially since. While
implementing such, reforms will present challenges, it is critical that the public narrative around
delays changes. Delay in courts is not an HR issue -it is a question of the growth of a culture that
has made delays acceptable. It impacts our ease of doing business rankings and hinders access to
justice to the mazdoor whose employment has been unlawfully terminated.
Scarcely has there been an issue that cries out louder for the government and the judiciary to secure
the constitutional mandate of speedy and effective access to justice.

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SOME MEASURES TO IMPROVE JUDICIARY:

● Categorization of disputes under provident fund, gratuity or industrial laws before passing
them through the resolution can reduce the burden on judicial organs.
● Thousands of cases and appeals are pending under various State and municipal laws. These
laws can be simplified and should be made more clear with clear rules and regulations.
● Retired Supreme Court judge should be employed specifically to opine on pending
disputed issues and direct the departments to effect a fast resolution.
● Bulk disposition by consensus is the way out of the humungous backlog of civil litigation.
● Setting up Supreme Court benches in Mumbai, Chennai and Kolkata would help thousands
of litigants who otherwise end up travelling all the way to Delhi.
● We can follow the Chinese model where law students are encouraged to appear for the
national judicial examination to ensure a steady availability of quality judges at least in the
lower judiciary.
● Massive computerisation for case management and technological framework is needed.

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CONCLUSION

As it has been demonstrated that slow courts are a serious problem for India's economic
development. What is less clear is how to solve the problem. Mookherjee (1993), Singh (2003)
and Debroy (2008) provide diagnoses that seem no less relevant today than when they were
written. The problems they flag include numerous and long-unfulfilled judicial vacancies, slow
growth of new posts, poor case management and antiquated procedures. More recently, the non-
profit research agency DAKSH released a wide-ranging report on the “State of the Indian
Judiciary” which reiterates these and further issues (including the computerisation of court records
and the reformation of judicial administration). Clearing the mounting backlog in our judicial
backyard is doable with strong political will. With efficient judiciary India can achieve growth
over 8% with fast track resolutions and ensuring less crime in the country leading to overall
development of society.

Whether such changes will be made and whether they will have the desired effect remains to be
seen. What is more clear is that until courts can be sped up, India's industries will run more slowly
too.

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REFERENCES

⮚ https://m.economictimes.com/news/politics-and-nation/hidden-factors-that-slow-our-

courts-and-delay-justice/articleshow/57887726.cms

⮚ https://www.ideasforindia.in/topics/governance/justice-delayed-is-development-denied-

the-effect-of-slow-courts-on-economic-outcomes-in-india.html

⮚ https://www.researchgate.net/publication/228659763_Does_the_Quality_of_the_Judiciar

y_Shape_Economic_Activity_Evidence_from_India

⮚ https://www.livemint.com/Opinion/63QBFM378qZDFWqNAzM4RJ/The-nontrivial-

costs-of-a-slow-judiciary.html

⮚ https://www.financialexpress.com/opinion/courting-economic-failure/1512800/

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