Monday, February 13, 2012

Legal Cost of Business and Judicial Reforms

It seems Supreme Court of India has switched to an active mode, historic judgments are delivered back to back; influential politicians, powerful top bureaucrats, most wanted celebrities and giant corporations have been on the receiving end. The institution of judiciary is trying to gain the lost reputation, and in the process ‘Supreme’ is becoming ‘Super’ Court of India. Initially when the ripples of this change were felt, an overconfident government (with many legal eagles on-board) thought that they were represented by a bunch of incompetent lawyers, and hence fresh appointments were made from reputed stables(chambers) of law, but the scene got worser. After all, little could the lawyers do, in a system of wrong priorities and mismanaged governance.

The recent judgment in Vodafone Tax Case by the apex court is hailed as an epic one. So much was the celebration that corporate lawyers in television shows were feeling lucky to have been lived in these days. It is true that the judgment declaring that overseas share transfer is not taxable within India, has sent a strong and positive message to corporates and investors across the globe. Certainty of taxation laws and predictability of judicial decisions always create an investor friendly climate. On a lighter note, the government has not lost the battle, as it is the same government which spends crores annually to host the great ‘Pravasi’ dinner.

On the contrary, Supreme Court Decision in the 2G case has opened a pandoras box. When the apex court makes a sweeping general statement that the existing first-come-first-served (FCFS) policy itself is skewed, after nearly 10 years of its existence, many argue that it’s an intrusion in to the territory of the executive and conveys a very negative mood. The government has become less trustworthy, policies unpredictable and has left a cloud of uncertainty over the legitimacy of licenses issued in other sectors like mining, operating on the existing FCFS policy. The consequences of both these judgments are yet to be seen, but both of them convey opposite feelings to the India Inc.

This existing confusion at the highest levels is reflected in the recently released World Banks ‘Doing Business Report 2012’, (Report can be accessed, the Indian performance being dismal. It is an annual report prepared after surveying 183 economies in the world, comparing the ease of doing business in each of them. Few relevant mentions are:

  • Globally India stands 109 amongst 183 surveyed economies on the ease of doing business.
  • Starting a business in India requires 12 procedures, 29 days, and costs 46.8 % of per capita income and requires 149.6% of income per capita.
  • Registering a property requires 5 procedures, 44 days and costs 7.3 % of the property value.
  • Regional average of South Asia is 23 on the ease of starting a business, India is placed 166.
And the real shocker: India is placed 182nd amongst 183 economies on the ease of enforcing a contract. As per the study, enforcing a contract in India requires an average of 46 procedures takes 1420 days and costs 39.6 % of the value of the claim. And interestingly the data reveals that this position has remained almost the same since 2004, with no major reforms which could make a substantial impact to find a mention in the report.

Even admitting that there exists a ‘governance deficit’ in our country, a lot more could have been done by a prudent government and an active judiciary. At the top level, it is a delight to see that the judicial pendency in Supreme Court has come down in 2011, but the wind has not moved from the national capital. The judicial pendency in lower courts is still a matter of a serious concern. The implementation of Gram Nyayalays Act, 2008 intending disposal of cases at the village levels, is moving at a snail’s pace. Numerous bills calling for substantial judicial reforms like the ones dealing with judicial appointments, criminal law amendments, companies law and land acquisition, are pending before the parliament for many years. Reports from celebrated administrative reforms commission, law commissions and other advisory bodies haven’t crossed the first stage for their approval. Judicial reforms unfortunately fails to be a priority for all organs of the government; each one accusing the other for being either ‘letharigc’ or being ‘activitisic’, and the blame game continues….

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