How hiring more judges can spur firm growth

Across India’s courts, thousands of cases are pending resolution because of an overburdened and understaffed judiciary. Addressing this would not only lower the case backlog but also drive economic growth, according to research.

In a new study, Manaswini Rao of the University of California, Berkeley shows that improvement in the performance of district courts, through the addition of judges, can notably improve outcomes for banks and formal sector firms in India.

Using a dataset of six million active court cases between 2010 and 2018 across 195 district courts, Rao measures district court performance by calculating disposal rates. This is the number of trials resolved in a given year as a share of total caseload with higher rates indicating faster resolution of cases.

She finds that a major driver of disposal rate is judge vacancy. She finds that adding one more judge to a district court and filling a judge vacancy increases disposal rate by 6%.

She then measures the effect of changes in disposal rate on credit. Her analysis suggests that banks are the primary users of district courts since they are involved in debt disputes.

A heavy backlog implies that a bank’s capital remains stuck. Rao finds that a 1% increase in disposal rate is associated with 0.11% increase in loans issued a year later or, equivalently, adding one more judge to a court with vacancy increases lending by 0.5%.

This increased credit positively impacts production and profitability of firms located within the court’s jurisdiction which could, in turn, improve tax collections.

According to Rao’s estimates, adding one judge to a district court could potentially earn close to ₹76 lakh in taxes in the short run from each district which would significantly outweigh the annual salary of an additional judge.

Also read: Judges, Lenders, and the Bottom Line: Court-ing Firm Growth in India

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