Legal System and Economic Growth

Legal System and Economic Growth

To re-instill the trust and confidence of global corporates, the perception regarding uncertainty in the Indian legal system needs to be removed

"Respect the private sector as its contribution and congruity are key to economic revival and growth of the nation"

The engine of growth, economic development and prosperity of the nation is its private sector as it drives innovation, creates jobs, provides funds, takes entrepreneurial risks, builds competitiveness and pays the taxes that finances services and investment. The private sector generates 90 per cent of jobs, funds 60 per cent of all investments, provides more than 80 per cent of government revenues, and forms the backbone of the nation as it provides all essential services like banking, telecommunications, health and education.

 

Indisputably, for nation building, the private sector needs to be encouraged and supported so that it can produce high and inclusive growth while still generating the profits needed to succeed and grow. In order to achieve economic growth, the private sector cannot act alone but needs the support of government and other institutions to develop policies and legislative framework which encourage entrepreneurship, innovation and wealth creation. Experience suggests that the private sector has not been able to give its full to the economy, possibly due to the hurdles it faces and the same gets reflected in the World Bank's Doing Business rankings where despite our progress in overall ranking at 63, we have made insignificant headway in parameters such as Ease of Starting Business (rank 136) and Enforcing Contracts (rank 163).

The predicament of the private sector is that it is faced with the complex web of governance and legislative framework which mandates compliance and regulatory requirements. To add to these problems is the mindset of the executives who take advantage of this framework and work as obstructionists rather than facilitators. The Economic Survey 2019-20 by way of illustration, mentions that manufacturing units in India have to conform with 6,796 compliance items, which is a tedious and time-consuming task. Similarly, even for opening a restaurant, various states in India require several mandatory licenses and approvals which range from 20 to 40. Delhi requires a 'Police Eating House License' from Delhi Police that asks for 45 documents compared to just 19 needed to buy a gun. On the other hand, enforcing a contract in India takes on an average 1,445 days and this does not include time taken in various rounds of challenges before the higher courts. Clearly, India does not provide a conducive environment to the Private Sector to grow and flourish.

Besides the bureaucracy, the legal system of our country also needs to share the burden of hurdles faced by the private sector leading to pushback of economic growth. Our legal system has developed certain negative features over time which are complex and time-consuming. Though we believe, justice delayed is justice denied, however, we have not been able to overcome the problem of delays in our legal system. For these reasons, contract enforcement and access to justice remains difficult. To add to the burden, certain judgments delivered in critical cases have adversely impacted the economy as well as the position of the country as a preferred business destination. These judgments have resulted in the economic world linking uncertainty with our legal system.

The legal system of India to be a catalyst to economic growth needs to overcome the inherent weaknesses. Additionally, it needs to learn that we need economically responsible justice to sustain in these difficult times. It is imperative that nation building can only happen through economic growth which in turn is dependent upon the role and contribution of the private sector. This realization needs to percolate in all organs of the state machinery which need a cultural and mindset change at all levels and in all areas with a lead being taken by the judicial system.

We have seen in the past that major Supreme Court verdicts delivered over the last few years – cancelation of the 2G spectrum licenses, coal block allotments, mining leases in Goa and the court's foray into policy-making through orders such as the highway liquor ban have led to legal experts saying that the courts should be 'squarely blamed' for some of the problems ailing the economy. The use of wide discretionary powers such as grant of interim orders in the name of sustainable development have not only affected the economy but have also been a cause for concern among industries. Continuing with vexatious and frivolous litigation on the grounds of public interest has had catastrophic economic effects.

Keshavananda Bharti's recent demise reminds us that his petition led to a landmark verdict on the separation of powers forming a part of the indestructible basic structure of the Indian constitution. However, the experience suggests that the Courts have been making inroads into the functions of other organs of the government leading to, at times, judgments which have far-reaching social and economic consequences.

The scope of Article 14 (which declares arbitrary state action as unconstitutional) has been expanded to such an extent that one can interfere in anything, even when it has such adverse consequences on the economic policy. The Courts should refrain from interfering with economic policy decisions and must restrict themselves to the interpretation of law.

The court's decisions must be based on a firm constitutional and legal basis. Article 32 should not be allowed to take over government functions and similarly restraint should be maintained on the invocation of Article 142 in commercial issues. In the 2G/Coal scam, had the court gone into only constitutional and legal issues concerning corruption instead of getting into policy issues and quashing the licences and allocations, we would not have experienced the adverse impact of these orders on the economy.

We have already experienced 3 industrial revolutions and the fourth industrial revolution ("IR-4") is underway. IR-4 is an amalgamation of various technologies such as Artificial Intelligence, the internet of things (IoT), autonomous vehicles, 5G telephony, nanotechnology, biotech, robotics, quantum computing and the like. Indisputably, IR-4 is changing how we live, work and communicate. It is reshaping government, education, healthcare, commerce and almost every aspect of our lives.

By the very nature of IR-4, it is clear that the private sector would go beyond national boundaries and some of the global corporates would be larger than many nation states in terms of turnover and wealth.

To re-instill the trust and confidence of global corporates, the perception regarding uncertainty in the Indian legal system needs to be removed. For achieving this, not only economically responsible justice needs to be delivered but also steps need to be taken by the executive regarding procedural issues while being mindful of the contribution of the private sector in nation building Needless to state that this would also involve a mindset change as the private sector is to be seen with respect and not with suspicion.