This is an interesting write-up* which cites an University of Bonn’s study reporting that an efficient judiciary can increase per capita income by 1.9 per cent. Similarly, it cites another study which reports that Brazil’s gross domestic product has slowed down by about 20 per cent as a result of judicial dysfunction. The write-up highlights the fact that an efficient legal system is crucial for economic growth.

Dr D.C.Misra
September 24, 2007  


*Judicial Reforms – Legal review critical for economy

An efficient legal system is crucial for economic growth. A University of Bonn study shows that a responsive judiciary can boost per capita income growth rate by almost 2 per cent.Saikat Neogi

Saikat NeogiAN EFFICIENT judiciary stimulates economic growth by aiding market development, facilitates foreign investment, enforces property rights and most importantly helps in poverty alleviation. In fact, a University of Bonn study says an efficient judiciary can increase per capita income growth rate by 1.9 per cent.

Various studies have shown that poor judicial performance costs a country dearly Robert M Sherwood of Harvard Law School, in a recent research on the economic impact of judicial performance in Latin American countries, found that Brazil’s gross domestic product has slowed down by about 20 per cent as a result of judicial dysfunction. With over 30 lakh cases pending in various Indian high courts and over 2.5 crore cases in subordinate courts, the economic consequences here could be anybody’s guess.

Proper enforcement of property rights is an important function of fair judiciaries. The All India Bar Association estimates that about 40 per cent of all litigations filed in lower courts and state high courts put together are related to land ownership, rent and other property related disputes.

As land titles in India are poorly recorded, and 111 various laws apply to land and property disputes, the poor find it impossible to establish their claims and struggle through the judicial process. Though India had for many years tried to implement land reforms, it failed due to the large number of suits filed. As a result, a privileged few in a district contro1 the bulk of agricultural land and alternatives to agricultural labour are scarce making the rural population dependent on the landlords.

A slow judiciary gives less incentive to respect business contracts, discourages new investments and leads to preference for family ownership of firms. The 2007 World Bank report on Doing Business: How to Reform which ranks India down below at 134 out of 175 countries, says it takes around 1,420 days to enforce a commercial contract through the courts in India as against 351 days in OECD countries. This is determined by following the evolution of payment disputes and tracking the time, cost, and number of procedures involved from the moment a plaintiff files the lawsuit until actual payment.

Such delays have a direct bearing on business and investments. Establishing a negative correlation between pending court cases and the performance of firms in India, a London School of Economics study says 60 per cent firms are less likely to expand their business in states which are slow in settling court suits. A weak judiciary has a negative effect on capital formation and on per capita income. In a 2000 World Bank survey of 3,600 firms in 69 countries including India, over 70 per cent respondents said an unpredictable judiciary was a major problem in their business operations. The study further points out that  firms often have to resort to alternate dispute reso1ution systems such as credit rating agencies or trade associations. This entails additional costs for companies, which become a hindrance for smaller firms.

Spending on judicial reforms is an investment in future economic development. As Noble laureate Amartya Sen says, “A successful judicial system is a valuable part of the development process, not just in the way it may aid in obtaining economic prosperity but also in the way it may protect civil liberties and freedom.”

(Source: Neogi, Saikat (2007): Judicial Reforms: Legal review critical for economy, The Hindustan Times, New Delhi, September 24, p-24,, accessed: September 24, 2007)



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