PM Modi is eager to convince global companies and investors that India is a business-friendly alternative to China. A top court ruling this summer told another story.
Prime Minister Narendra Modi is eager to convince global companies and investors that India is a business-friendly alternative to China. A top court ruling this summer told another story, highlighting the infamous judicial delays that threaten to stymie businesses and scuttled deals.
The Supreme Court ended the 38-year saga of an alleged turmeric forger, who was arrested in 1982 and, eventually, sentenced to a month in jail and a 500 rupee ($6.70) fine. After a decade, the top court reversed his conviction; the two lower courts took around 14 years each to render verdicts.
The lifespan of the turmeric case is extreme but not unique among the nearly 40 million cases pending across the country’s three-tiered judicial system. Among cases in 25 state high courts, roughly 173,000 have been pending for more than 20 years, and roughly half of those for more than 30, government data showed.
The World Bank ranks India in the top one-third of countries for overall ease-of-doing-business, but when it comes to enforcing contracts — a measure of legal efficiency — the south Asian nation lands in the bottom 15%, worse than Pakistan, Syria and Senegal.
“It’s pretty incredible,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The complexity, the unnecessary delays — it shows how India lags countries like China in their judicial system and just how much further they have to go.”
Legal and compliance expenses of companies listed in India increased to just over $3 billion in the fiscal year ending March 2018, up 57% in five years, according to national business daily Mint. Judicial delays have also tied up some of the country’s biggest corporations and would-be massive deals:
- IHH Healthcare Bhd’s attempt to take over hospital chain Fortis Healthcare Ltd was scuttled by Daiichi Sankyo Co.’s four-year fight to enforce a $500 million arbitration agreement against Malvinder Singh and Shivinder Singh.
- After 10 years, the Indian Supreme Court directed the provincial government in West Bengal to return land leased to Tata Motors Ltd.’s back to local farmers.
- A twenty-year dispute ended with a $19 billion judgment against all the country’s telecom companies, including those that have shuttered since the case began.
The long time to resolution creates a lot of uncertainty for foreign companies otherwise interested in doing business in India, said Souvik Ganguly, Managing Partner at Mumbai-based Acuity Law. “Uncertainly makes investors nervous,” Ganguly said, adding that India is “competing against a Singapore, Thailand and other countries which are much faster to resolve disputes.”
Part of the backlog is a result of judicial vacancies. In 25 high courts, which hear most of the commercial disputes, 37% of judgeships were vacant as of August 1, according to government data. In the lower district courts, the most recent data identified a vacancy rate around 23%.
India’s law ministry told Parliament in 2019 that it is coordinating with the judges of the Supreme Court and high court to fill up the vacancies, and last week a panel of Supreme Court judges recommended 11 new judges for appointments across three different high courts.
Emails and phone messages seeking comment from the law ministry remained unanswered.