Economics versus the law

Pradeep Mehta's book, critiquing six judgments impacting India's economy, is a call for introspection, highlighting the consequences of overstepping by courts and the problems with the PIL process

Supreme Court and the Indian Economy

Author:  Pradeep Mehta

Publisher: Academic Foundation

Pages: 392

Price: Rs 1,495

Intrepid, articulate and conscientious, Supreme Court and the Indian Economy brings out succinctly the loss of bureaucratic confidence, dent in investor sentiment, the constitutional overstepping by courts, and, of course, the economic loss. 

The book is a critique of six specific judgments by the Supreme Court (SC) that illustrate the tension or even friction between economics and law. The author questions the lack of economic impact assessment competence and wisdom of the SC without resorting to any vitriol by presenting the counterfactuals — a method many budding journalists could learn. Judgments on the sale of liquor in the vicinity of highways, 2G, coal allocation, Bharat Stage emission standards for automobiles and adjusted gross revenue (AGR) provide the basis of his arguments. Shivsakthi Sugars provides the lone positive sample.   

The cancellation of coal allotments takes up the maximum space and leaves an imprint comparable in size. It illustrates the perils and pitfalls of public interest litigations (PILs), overzealous criticism by Comptroller & Auditor Generals (CAGs) and judicial grandstanding. The book argues that the cancellation of coal blocks created a loss of Rs 4.40 trillion (through cess, royalty and taxes), an increased current account deficit of Rs 4,270 crore, imports of Rs 54,400 crore in 2014-15, and an increase in non-performing assets of banks of Rs 1.75 trillion. Ironically, the alleged potential losses reported by CAG were Rs 1.8 trillion.

The basis of CAG’s calculations, as is argued, looks dubious and nothing more than perfunctory back-of-envelope calculations using mathematical horrors of averaging.  It is even more ironic that the court took a longer time to deliver its judgment than the six months it gave the operating companies to wind up their operations. A more prudent approach may have been to retain the benefits accrued and operate the assets created but recover the losses  — presumed or actual — from the beneficiary and penalise only the wrongdoers.

The PIL was justified on grounds of legality and constitutionality, fairness, and transparency. But the CAG calculations and several process steps are shown to be about as fair and transparent as the coal block allocation itself. The biggest sufferer was the public, which was saddled with all these losses directly or indirectly, but also with power cuts, job losses of around 1 million and additional levies by state governments who lost out on a significant amount of royalty revenues— a case of punishing the victim!

The telecom sector contributes 7-8 per cent of India’s gross domestic product, provides 2.2 million direct and 1.8 million indirect jobs besides accounting for a sizable portion of bank debt. It has been the worst hit with two of the most economically consequential judgments. The first –come-first-serve policy in licensing reeked of ungainly formulation and was implemented with unseemly haste. It rightly called for judicial intervention, but the failure to segregate the 85 ineligible licensees from the 122 and the lack of process to collect evidence of criminal intent seems like a big failure in itself.

As if this is not enough, huge claims made on the sector retrospectively based on an overzealous interpretation of adjusted gross revenues (AGR) was a body blow. The flip flops by the court, the inconsistencies, and the lack of coherent logic by both the government department and the court shows them in poor light.

The SC repeatedly declares its lack of expertise and constitutional competence to decide between alternative ways to allocate natural resources, shows deference to legislative supremacy in making laws. But as the book argues, the courts show the least regard for these in practice by adopting a carte blanche approach by cancelling all the coal block allocations and telecom licences.

What definitely merits a review is the PIL process. The book brings out the pitfalls of PILs — lack of fair chance to the affected parties to represent themselves, lack of requirement of a body of evidence, absence of a rigorous process of “let evidence”, as followed in trial courts, and lack of punishments commensurate with losses caused by failed PILs, as is the practice in the US.  The book rightly points out that the first duty of the court is to apply the applicable laws to the facts of the case to see if there are infringements. If alternative interpretations are possible, it could ideally weigh the economic consequences and perhaps lean in favour of what is more beneficial to society.

Constant rebalancing between the various arms of democracy — the administration, legislature, press, army and judiciary — is essential to prevent independence from transcending into domination or even dictatorship. Books like these hold up a mirror to those overstepping tolerance limits. It is as much a yellow card to CAG, PIL litigants, and corrupt politicians as to the courts.

Overall, the book is a must-read for budding bureaucrats and judges — as well as those who want to twist the systems. There is some avoidable repetition, and the book is somewhat short on approaches that would have been more appropriate to deal with the individual cases.

Also, the author has fortified himself well against any possible contempt of court proceedings with a legion of endorsements from legal luminaries, economists, administrators, and ex-judges. Forty-six endorsements, including one from Vinod Rai, who seeded the storm in a couple of cases, three forewords besides a prologue, in all consuming one-seventh of the book, seems like overkill.

The reviewer is the author of Making Growth Happen in India (Sage)