Judicial delays: An economic burden

Inefficiencies in the judicial process are stifling growth and investment in India

The Chief Justice of India has done well to identify delays in case resolution as denial of justice.  Judicial delays are a problem in other countries as well, but India is probably among the worst globally.  According to the World Bank Doing Business Survey, the average time taken to enforce a contract through the court in India stood at 1,445 days (almost four years) and was among the lowest five countries. Of course, the World Bank Survey has some flaws, as surveys that seek to capture global differences do tend to suffer from comparison challenges.  But irrespective of where we stand on any global ranking, the fact remains that judicial delays are a serious problem in India causing untold suffering and, of course,  denying justice to many.

What is surprisingly not as well understood is the harm that delayed case resolution has on the economy.  This is because delayed cases are so endemic, and work in such complex ways that measurement is difficult. Courts across all states and Union Territories suffer from a high level of judicial delays, which occur at all levels and types of courts and across both civil and criminal cases. 

Delayed case resolution has many adverse ramifications on economic activity.  It leads to the locking up of assets, land or other resources that can’t be used optimally or flexibly, and regular decision-making itself gets impacted for many years if not decades.  According to one estimate, as much as $200 billion is locked up in land-related conflicts in India.  The second class of impacts includes the legal costs, which are not just legal fees but also the cost of time and effort of senior management, and these persist for a long time.  We don’t find studies that quantify these figures in any robust manner, but given the prevalence of delayed case resolution, it would no doubt be significant. 

But both of these adverse impacts due to judicial delays are outweighed by another class of impacts: The expectation of judicial delays. Many economic relationships that could have been formalised through written contracts consequently remain in the informal domain.  Consequently, there is greater dependence on personal relationships in businesses, community networks persist despite modernisation, and small businesses prefer to remain in the unorganised sector.  Larger firms and corporate houses naturally have a greater ability to sustain litigation costs for a longer period, but it is the mid-sized firms that are worst affected. 

Perhaps the most significant impact of endemic judicial delays is the altering of behaviour itself.  Unethical business practices need to be quickly identified and punished, or they can become the norm rather than an outlier. However, in the presence of judicial delays what should be an outlier becomes the norm.  Moreover, since contracting is difficult to enforce, risk-taking behaviour gives way to a more  cautionary approach, and the business perspective itself is more likely to have a shorter horizon in a world where contracting is ineffective. 

There are many claims made about the culture of risk aversion in Indian business, and their reluctance to invest in research and design. I wonder if it is truly the culture of business in India, or a rational response to a world of judicial delays where contracting does not work well.

Over and above this, there is the phenomenon of government-related litigation, where government departments are involved in a high share of the total litigation.  Within the government, the revenue and labour departments reportedly account for the largest share of litigations.  Given that cases are not resolved for long, the aggregate impact of these cases over their lifetime would not be insignificant. Studies have also documented the inability of governments’ legal departments to adequately respond to litigation requirements in a timely manner. In other words, governments at the central and state levels need to invest in their own capacities.

Each of the above factors has an adverse impact on transactions and growth itself. Although studies have been few, it has been estimated that gross domestic product growth is curtailed by 1-2 percentage points annually due to judicial delays. More micro-economic studies find that industries with greater dependence on relationship-specific investments and contracting are more adversely impacted by judicial delays.  Today’s complex manufacturing, global value chains, and relation-specificity in trade and investments, all depend upon contracts that need to be fairly enforced and in a timely manner.

No doubt governments have been aware of this and indeed much has been written about the various factors that underlie the problem.  Reports from the Law Commission, Finance Commission, Central Government Missions, and Supreme Court Initiatives have extensively documented the range of issues and possible solutions.  One set of recommendations include having greater judicial positions, filling unfilled positions, building adequate courtroom and other judicial infrastructure, and enhanced use of new information technology mechanisms.  Increasing the number of judges to be more in sync with a population of 1.4 billion would arguably require increasing judicial positions at various levels from about 25,000 currently to about two to three times that figure.  Of course, this would necessitate greater investments for constructing courts, libraries, hiring administration staff, etc.  Improvements in processes will require greater use of IT and that has significant IT infrastructure requirements as well.  Other issues include the frequent rotation of judges, lack of grouping, and other administrative practices that could easily be changed to enhance speed and efficiency. 

Merely increasing judicial positions and improving judicial infrastructure will not solve the problem, as delays are built into the system and are related to a range of issues, including historically poorly framed laws, rules and processes. Moreover, the practice of special and fast-track courts also does not help in the long run.  The Economic Survey of 2017-18 has documented how initial successes in specialised tribunals are followed by a rapid rise in pendency. 

While older laws no doubt need to be dropped or changed, many practices such as adjournments, rotating of judges, and poor matching of judges’ expertise with case allocation require the judiciary to align with the need to reduce pendency levels.  Moreover, many of these changes will require the judiciary and the government to work in tandem to untangle the various knotty issues that have emerged due to inadequate resources and workarounds. 

It is easy to see that there is a serious coordination failure between the judiciary and the government, both at the state and central levels. Finger-pointing, of course, would not help; we need to address the coordination failure problem.  One way is for the government to institute a high-level committee headed by a respected member of the judiciary, such as a retired Chief Justice of the Supreme Court of India, with a time-bound mandate to identify a method of a well-coordinated approach between the judiciary and the government at both the central and state levels.

The writer  is president, Centre for Social and Economic Progress