Towards major reform

Institutional constraints ought to be removed

Lack of reform in legal infrastructure is a major constraint on GDP growth. Obsessed with exchange rates, fiscal deficits and tariffs, the first flush of reforms ignored institutional constraints. Though belated, the recognition now seems to be seeping in, but law reform is complicated and has many strands. First, old and dysfunctional statutes at central and state levels need scrapping. Second, statutes need unification and harmonisation. Third, administrative law or subordinate legislation needs simplification, with reduction in state intervention. Fourth, the dispute resolution system needs speeding up. Some initiatives are seen on the fourth and recently 300-odd central statutes have been repealed, following a similar exercise earlier concerning around 40 central statutes. Of the 3,500 central statutes, more than 100 are archaic and should have been reviewed in 1950, if not in 1947. It defies logic that we continued to have something like the 1862 Government Seal Act on the statute books, which was extended to Arunachal Pradesh as late as 1993. This states that seals of the East India Company can be replaced by those of the central or state government. Stated differently, these statutes did not reflect the fact that India had become Independent. There are around 1,700 central statutes that need such scrapping and a welcome beginning has been made.

Of course, sometimes sections of a statute need scrapping rather than the statute in its entirety. For example, the Indian Trusts Act of 1882 may be retained, while eliminating the section that recognises securities issued by Karachi port as a valid instrument for investment of Trust proceeds. Similarly, few people would want the Reserve Bank of India (RBI) to be wound up. However, the Preamble to the 1934 statute, which insists RBI is a temporary organisation, can be modified. The present initiative is, however, confined to central statutes and in keeping with the federal structure, it needs to be extended to states. Perhaps more importantly, a review of administrative law is also called for. Problems may not pertain to the Factories Act, but to rules issued under it which stipulate that red buckets filled with sand must be maintained. Fire extinguishers will not do. Or that earthen pots filled with drinking water must be maintained. Water coolers will not do. Apart from being dysfunctional, such rules encourage rent-seeking by petty inspectors and the corruption hurts the small more than the big. Unfortunately, other than a reference to orders issued under the Essential Commodities Act in the budget speech, reform agendas have so far ignored such subordinate legislation.