The following
is the text of the Finance Minister, Shri P. Chidambaram’s speech delivered
at the 14th Annual Convocation of National School of India University , Bangalore
today: “It is a great privilege to
be invited to be the Chief Guest at the annual convocation of the National
Law School of India University, Bangalore. In the nineteen years of its existence,
this University has carved a niche for itself and is now widely regarded as
a centre of excellence. I would like
to congratulate the students who will receive their degrees today from the
Chancellor of the University, the Hon’ble Chief Justice of India, and to wish
them all success in their future careers. I am confident that the knowledge, skills and attitude imbibed by
each one of you during your stay at this University will stand you in good
stead for the rest of your life.
The purpose of law
I
would have loved to speak to you today on issues pertaining to law. However, I assume that you wish to hear from
me on the path-forward for economic reforms. I am happy I can do both, because
I believe there is a common ground between law and economic reforms. That
is the most important lesson that I have learnt in my years in Parliament,
in Government and as a practising lawyer. That common area of concern can
be captured in one word: governance.
"Howsoever
high you may be, the law is above you". Law is the great leveler in a
democracy. It is the expression of the collective wisdom of the people on
how they wish to be governed. Who will be the rulers? What will be the rules? Who will enforce the rules? Who will resolve
the disputes? These questions should be answered by the people alone. The
purpose of law is of course larger than the laws themselves. The purpose is that life should be better,
society should be more civilized, opportunities should be more equal and prosperity
should be shared by all. Laws are
therefore intended to promote better governance; and better governance is
expected to assure a better society.
The
purpose of economic reforms is no different.
Just as free men and women have the freedom to make political choices,
they should also have the freedom to make economic choices. History tells us that only an open society
and an open economy can bring rapid material progress and prosperity. We know of countries that claim to be communist
or socialist, but have astutely adopted the principles of a market economy
to achieve higher and sustained economic growth.
Economic
Reforms, Regulation and the Regulatory Architecture
The
year 1991 marked a watershed in India's economic history. Although some tentative steps were first taken
in the 1980s, the defining moment came when the Budget was presented by Dr
Manmohan Singh in July, 1991. Since
then, gradualism has been the order of the day in ushering in economic reforms.
Gradually, but surely, India moved away from a dirigiste economy.
A
major wave of liberalization swept through the economy, starting from the
industrial, trade and financial sectors.
The earlier license-control raj was abolished and a bigger role was
assigned to market forces in driving the economy. The focus of policy making
shifted from control to facilitation, and it aimed at providing a conducive
and congenial environment in which industry, trade and services could grow.
Globally,
the current dominant paradigm of economic development places greater reliance
on market forces to achieve higher rates of economic growth. Many developing countries have introduced market-based
economic reforms to reap the benefits of globalization. The Indian economy too is being integrated,
gradually but increasingly, with the global economy through trade, investment
and capital flows. Moreover, further
deepening of reforms is taking place in the financial sector, agricultural
sector and the overall regulatory architecture. More focus is being put on issues of governance and institutional
development.
However,
it should be noted that governance and institutional development are dependent
upon capacity and competence. We have
found that in many areas there are grave deficiencies in our capacity to deal
with the matter at hand. For example, execution of major projects is considerably
delayed resulting in time overruns and cost overruns. Of 742 projects each of a value of Rs.20 crore
or more, 269 are still in different stages of implementation with time overruns
ranging between 3 to 252 months and cost overrun of Rs.30,420 crore.
In other areas too, we have found that we lack competency and skills
of a high level and we have to either outsource the work or induct talent
from outside. Our capacity to draw up model concession agreements, to do project
appraisals, and to evaluate bids in the case of complex tenders is quite limited.
Normally, these limitations do not arise because of a lack of technical
expertise such as expertise in engineering or accountancy.
The most notable deficiencies are in the areas of documentation, financial
appraisal, risk analysis and distribution, and dispute resolution. Where international
bids are invited for a large project, we have found that we have to depend
upon outside experts to draw up the financial and legal documents.
Likewise,
there are deficiencies in the regulatory architecture. Regulation in a broad
sense can be defined as the operational manifestation of statutory provisions
and institutions of enforcement within which all units in a specified sector
must function. Regulation is motivated
by the objective of resolving the conflict between the commercial goal of
maximizing profits and the interests of the people using these services, in
areas where normal market processes are believed to have a high likelihood
of market failure. Regulations are
the rules of the game framed by, or under the authority of, a sovereign government. But, like FIFA regulations in the case of professional
soccer, regulations must and do have a close association with ethics.
Regulation
can be divided into two parts: the standard procedures such as registering
a business or obtaining a business license and those procedures that are mandated
by independent or autonomous regulatory agencies created under law. The key difference between old-style control
by government ministries and the new-style, independent regulators is that
the latter have quasi-judicial powers; they are constituted and operate, at
least in theory, at an arms' length distance from the rest of government;
and they have special domain knowledge.
Along
with policy reforms, India has been on an ambitious path of building or restructuring
institutions. This is particularly
striking in the regulatory arena. Regulations
in banking, commodity futures markets, capital markets, insurance, telecommunication
and power are now in place and reasonably well established.
Others, in the area of competition policy, pension etc are at different
states of formation, and still some more (petroleum, civil aviation, railways)
are under consideration. The list is a long one, and is expected to
grow longer.
The
role of the State in India has simultaneously been sought to be redefined,
and is evolving in consonance with the economic reforms. The State’s foremost obligation is to provide public goods such
as security and law and order. Among the duties of the State is the duty to
enforce the sanctity of contracts and generally facilitate the economic agents
to perform their functions. The State
has moved away from occupying the ‘commanding heights’ of the economy to being
a ‘facilitator’ for growth. It is
not that the economy can do without the State; the State is certainly required
to provide the right environment and architecture in which the economy may
grow.
Contracts
and enforcement thereof
One
of the most important features of a modern market economy is the primacy accorded
to contracts including the freedom of contract, the sanctity of contracts,
their enforcement, and dispute resolution. The obstacles that contracts face are numerous and well known. For
example, Governments tend to limit the freedom of contract, market forces resent such limitations. The contracting parties strain to find ways
and means to avoid their obligations. Sometimes,
Government steps in to overturn concluded contracts by changing the law.
Enforcement of contracts may turn out to be tortuous and sticky, virtually
destroying the sanctity of the contract.
On failure of enforcement, when the parties resort to dispute resolution,
it may turn out that the resolution of the dispute itself becomes highly disputatious. We have found that the comfort level of domestic
and foreign investors is directly proportionate to the sanctity of contracts.
I am convinced that, in order to be a globally competitive economy, it is
essential that the sanctity and enforcement of contracts in India must meet
the highest global standards. Hence, the public goods of law and order and
enforcement of contract are a central
part of the infrastructure of a modern economy.
India started with the English
‘common law’ tradition, where laws were written in terms of general principles
and courts played a major role in interpreting the principles in the light
of contemporary issues. Over time, this common law legacy became less important, and the
structure of India law moved closer to ‘civil law’, where legislation contained
explicit detail and extensive codification.
There are
over 3,500 Central laws in force. There may be 25,000 to 35,000 State laws.
In addition, there is a substantial body of subordinate legislation.
A single collection, putting all these together on one website, does not exist.
The agenda for legal reforms
in India, in my view, comprises five aspects.
Old laws: There are
laws that go as far back as 1836. Elements
of legislation that play a major role in the economy go back to the 19th
century, such as the Societies Registration Act (1860), the Indian Evidence
Act (1872), the Indian Trusts Act (1882) and the Transfer of Property Act
(1882). Old laws tend to have clauses
that are incompatible with a modern economy. The Jain Committee identified 1,300 out of
3,500 statutes for outright repeal. Of
these, approximately 350 were repealed in recent years. The real complexities lie in the areas where
outright repeal is not possible.
Harmonization and rationalization: As an example,
there are 45 Central Acts that directly pertain to labour. Beyond this, there are other Acts that indirectly
concern labour. Given this large body
of law, many inconsistencies have crept in and require to be ironed out.
Reducing over-legislation and State intervention: To cite an example,
the Weekly Holidays Act of 1942 and the Shops and Establishments Act of 1948
require that every shop or establishment must be closed for one day in a week.
This is inconsistent with the 24 hours a day, 365 days a year vision of modern
retailing or call-centres. The Factories
Act requires that all inside walls be re-painted or re-varnished at least
once every five years. These kinds
of detailed prescriptions are inconsistent with the process of economic reforms
which requires the State to refocus on the provision of public goods.
Administrative law reform: Difficulties
in the matter of ensuring transparency
and public disclosure have been experienced in the context of rules, orders
and regulations that form subordinate legislation. A related aspect is greater clarity and establishment
of State liability when the State or agents of the State, including a regulator,
inflict damage upon a citizen. We have not yet addressed the issue and the
consequences of regulatory failure.
Speed of dispute resolution: The number
of judges in India is roughly 10 per million of the population, while OECD
countries have 50 to 100 judges per million of the population. There are about 23 million cases pending in
courts and the backlog continues to grow. Productivity improvements need to
be implemented in all courts. At the same time, it is necessary to put in
place a sound alternative system of dispute resolution, especially for commercial
disputes.
I am sure that the young graduates of this
prestigious institute will do their best to improve the legal architecture of
the nation in order to improve governance at all levels. You have chosen law as
you career. There is no aspect of life that is not touched by some law or
other. When you walk on your career path, whether you advocate the law or apply
it or interpret it or make it or unmake it, kindly bear in mind that you will
affect the lives of one or more people for better or worse. Hence, it is worth
repeating the injunction, "Howsoever high you may be, the law is above
you."
BSC/NSK/SK
(Release ID :20328)