Economics of judicial delays

Economics of judicial delays

Court delays in India are fast acquiring a macroeconomic tone. It has been estimated that if court decisions were quick and delays reduced, economic growth could receive a boost to the tune of 1-2% of gross domestic product. Speeding the process will also help the poor.

In this case, the link between growth and helping the poor goes beyond the much-maligned trickle-down theory. Union finance minister Pranab Mukherjee highlighted this link in a speech on Sunday at the national consultation for strengthening the judiciary.

Two things are clear from what he said. First: because the poor feel let down by the judicial system, they are attracted towards extremist ideologies and taking the law in their hands. The result is that the cost of policing and enforcing law and order has gone up in recent years. Mukherjee said that in 2009-10, the Union ministry of home affairs has increased the allocation for this task by 25% in the budget. This is a travesty. This money could have been spent on development and other social purposes. As a result, delays in justice delivery have opportunity costs in other sectors.

The second side of this story is that poor contract enforcement is ensuring that investment decisions now have risk premia that factor in judicial delays. As a result, the cost of borrowing capital goes up: Many investments that would have been viable become unviable due to these delays. This problem was also highlighted by Mukherjee.

If one joins these two dots, the conclusion is obvious: Judicial delays are not only alienating poor citizens, but are also ensuring that economic growth, vital to lift them out of poverty, comes to a grinding halt.

The blame, however, cannot be laid on the judiciary alone. Judicial delays have complex reasons: shortage of judges, laws being dominated by procedural aspects instead of more substantive matters and few attempts to reduce the level of litigation among other matters. But there is no denying that this is now a big economic problem.

The way out of this mess is twofold. On the one hand, a drastic simplification in procedures is called for. There is no reason why contract enforcement and simple cases should take years to decide. On the other, it is important that there be alternative mechanisms to resolve disputes. Unless this is done, the gigantic flow of cases to our courts will continue to have huge economic costs.

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