India's judiciary needs a crash course in economics

Supreme Court judgement asking GAIL to pay pay around Rs 1,72, 000 crore to the telecom department shows judges must know the imperatives of economics.

In his book published recently, Amitabh Kant, CEO of Niti Ayog, writes that judges should be aware of the economic consequences of their judgements. He is absolutely right. 

A recent Supreme Court judgement requires the Gas Authority of India (GAIL) to pay around Rs 1,72, 000 crore to the government's Department of Telecommunications (DoT) for the use of spectrum for its satellite communications.

Since many other public sector companies are similarly impacted, the government is expected to set up a committee to sort things out. After all, these awards to the DoT are impossible to implement. 

To be sure, things will eventually be sorted out. But we do have to ask if the judiciary should not be given a crash course in the imperatives of economics. 

There is an urgent need for this because it’s important to make a distinction between society at large, the individuals who comprise it, and the economy that sustains both. 

Society demands equity. Individuals demand justice. But the economy demands efficiency. 

Until the 1970s, the judiciary pretty much kept these distinctions in mind. Judges thought of themselves as upholders of the existing law and left the making of laws to Parliament. 

But after 1971 a massive change came about. The newer judges came to see themselves very differently from their older colleagues and gradually the distinction between social equity, individual justice and economic efficiency was blurred. 

Judges started deciding just not on the basis of what the law was but also on the basis what they thought it ought to be. They thus moved from the positive to the normative. No one benefited as a result.

Hard ask

It is very difficult for man-made institutions to achieve a balance between individual justice, social equity and economic efficiency. In fact, as global experience shows, it’s impossible. 

The hardest of all to fit into the triangle is economic efficiency. This is because it almost always simultaneously acts against both social equity and individual justice because the maximum efficiency is achieved only when markets can freely adjust to changed economic conditions. 

The judiciary, however, has tended not to approve of this because it is almost wholly preoccupied with justice and equity. But even if we accept that this is its core function, we are still left with two problems.

One is that maximising individual justice can reduce social equity and the reverse is also true. This problem has been studied extensively by economists with a bent for philosophy. 

The other is that without economic efficiency, both justice and equity are adversely affected in the medium and long terms. We can see this all around us in India. 

In the end, all of this boils down to one simple question: what sort of inter se ranking should justice, equity and efficiency have. This is the problem that needs wide and wise debate, both within and outside the judiciary. 

As in the 1970s when Indira Gandhi’s Congress literally kicked aside the old premises, now also the process must be started by a political party that is not afraid—as the BJP has so far been—of disturbing the intellectual status quo. 

To be fair, it has tried to do this. But unfortunately it has tried subterfuge rather than open declaration of its commitment to efficiency.