INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Business Commentary/Bibek Debroy

Legal jungle hardly an incentive for market-based system

Around 106 bills were pending introduction in the Lok Sabha. Bills cleared by the 12th Lok Sabha, but pending before the Rajya Sabha, will have to be introduced afresh before the 13th Lok Sabha.

For the last three years, this has been a major problem. Parliament has not been able to conduct its legitimate business, enacting legislation. Instead, its time has been taken up by other things.

Reforms cannot proceed without legislative changes. For a market-based system to function, the legal system has to offer adequate incentives and deterrents. The Indian legal system is in a mess. Even if economic reforms had not been introduced in 1991, legal reforms would have been necessary. But with liberalisation, the need for legal reform becomes even more important.

How can one globalise without a legal infrastructure that is up to global norms?

There are many dimensions to law reform.

First, many statutes in India are old. India does not have a system of desuetude, whereby, laws die a natural death beyond a point in time. Since desuetude does not exist, statutes continue on statute books unless specifically identified for repeal by bodies like the Law Commission.

Thus, one has around 35,000 statutes in India, if one includes Central as well as state-level ones. Around 3,000 of these are at the Central level and around 450 have something to do with economic and commercial decision-making.

The earliest statute still on the statute books, is the Bengal Districts Act of 1836. The point is that statutes enacted by the British in the period following the Sepoy Mutiny or those enacted during shortages of World War II under the Defence of India Rules of 1939, no longer have any relevance. The deadwood must go.

Second, despite the large number of statutes, there are areas where necessary legislation does not exist in India. Examples are ATMs, credit cards, hire-purchase and leasing and several areas of intellectual property.

Third, there is a need for unification and harmonisation. Statutes evolved over a period of time. Consequently, concepts and definitions have changed. So has the case law, contributing to further confusion.

Labour law is a case in point. Labour is in the concurrent list of the Constitution, so both the Centre and the states can legislate on labour. If one considers Central statutes alone, there are 47 Acts that have something to do directly with labour.

The first of these was enacted in 1855, the last in 1991. If this is the span of time, obviously definitions of wages, workman, employee, child labour, industry and factory vary. Under the case law, the manufacture of bidis (country cigarettes) is not an industry, but the press and publication departments of Osmania and Hyderabad Universities are factories.

In 1994, a National Labour Code was drafted, unifying and harmonising labour legislation, with the argument that the organised labour market in India is extremely rigid. Focus was also on associated issues like an exit policy for labour or imparting flexibility to labour markets so that production does not become artificially capital intensive.

While these may be contentious issues, the unification part of it is non-controversial. So why don’t we simply go ahead and implement the National Labour Code?

Fourth, there is too much of State intervention. The Essential Commodities Act of 1955 is an example. Forget freeing of agricultural trade at the border. The Essential Commodities Act does not permit free inter-state movement of agricultural produce.

State intervention also crops up in the form of administrative law -- the entire gamut of government orders, regulations and procedures that are not statutory law, but are sanctioned by it. Many constraints to efficient economic decision-making emanate not from statutory law, but from administrative law.

Think of the number of clearances required for any business venture. Procedures are non-transparent, too much of discretion is left at the petty functionary level and this encourages corruption and rent-seeking.

The last time all this administrative law was collated in one place was in 1966. In 1998, the Prime Minister’s Office set up a committee for administrative law reform. The committee effectively said that it was unable to accomplish the task because no one was in a position to give the committee a complete list of administrative law in India.

Fifth, there is the matter of speed of dispute resolution. Thirty million cases are pending in Indian courts. On an average, it takes 20 years to resolve a dispute. If land is involved, the time taken will be longer. At present rates of disposal, even if there are no new cases, it will take 324 years to clear the backlog.

There is a demand side and a supply side to clearing the backlog. On the demand side, the demand for adjudication must be brought down. If there is a dispute, that does not necessarily have to be dragged into the court system. Alternative systems of dispute resolution like arbitration, conciliation and mediation also exist.

Historically, arbitration has not worked because it has never been freed from the court system. With the new 1996 Arbitration Act, things should improve.

Demand for adjudication can also be reduced by getting the government out of the system. In 65 per cent of civil cases, the government is a litigant, sometimes on both sides.

Why should government departments use the court system to resolve their disputes and crowd out the private citizen from access to the court system? In 1994, state law ministers agreed that government departments should settle their disputes outside the court system.

But this idea has not been implemented. Many of these government cases are appeals and 95 per cent of government appeals fail. In other words, they are pointless appeals that should not have been made in the first place.

Demand for adjudication can also be reduced by cutting down on the number of general appeals. At present, in a simple sense, two appeals are allowed. One on a question of fact and the second on a question of law. Why not have only one appeal?

Demand can also be reduced by improving the indirect tax system, which presently leads to unnecessary disputes. Over a period of time, the Supreme Court, the highest court of the land, has adjudicated whether lemons, betel leaves, turmeric, ginger and coconuts are vegetables. The issue becomes important because vegetables do not pay excise.

On the supply side, the Law Commission has traditionally advocated more courts, more judges. This is a valid point. One needs more courts and more judges and fewer vacant positions. But productivity also needs to be improved. Through computerisation and specialisation of judges, the Supreme Court has brought down the backlog from 130,000 to 19,000 over two years.

This success can be replicated in lower courts. On procedural law and for civil suits, the major statutes are the Civil Procedure Code, the Limitation Act and the Indian Evidence Act. The Civil Procedure Code goes back to 1908 and it is high time it was changed to improve efficiency of courts. A bill was moved in 1996, but seems to have disappeared.

The political uncertainty holds up reforms. So goes the argument. Whatever be the merits of that argument, the legal system needs changes. With or without reforms. And the problem is that Parliament does not do any legislative business. That is my primary concern.

Bibek Debroy

Business news