In an Ideas for India article, Johannes Boehm of Sciences Po and Ezra Oberfield of Princeton University attempt to quantify the impact of congestion and delays in Indian courts of justice on productivity of local companies, using data on inputs from the Annual Survey of Industries between 2000-01 and 2012-13.
The authors find that the sluggishness of India’s judicial system has implications for how firms source inputs and organize production, thereby affecting their productivity.
They argue that when courts are slow in processing cases, contract enforcement is weak as petitioners face long delays when trying to enforce contracts through the legal system.
Because of this, firms may prefer purchasing materials of production from suppliers they trust or avoid purchasing the inputs altogether and simply make the components themselves. These decisions can be costly.
To quantify the overall effect on industrial productivity, the authors compare firms’ expenditures on different types of inputs with court delays in their state.
First, they find that delays vary starkly across states: the average pending case is a year old in the fastest processing high courts (Goa and Sikkim), and four and a half years old in the slowest high court (Uttar Pradesh).
The authors calculate that, on average across states, if court congestion were reduced to be in line with the least congested state, industrial productivity could increase by as much as 5%. Thus, the authors argue that the potential economic benefits to improving the speed in which courts process cases could be large.
Read: Misallocation in the Market for Inputs: Enforcement and the Organization of Production