The Silent Accession of Law & Economics in India

– Swagat Baruah

In the Supreme Court Today

Over the past year, the Supreme Court of India has expressly dealt with the interface between law and economics in some notable cases. One such recent case is the judgment of the Supreme Court in Shivshakti Sugar Mills v. Shree Renuka Sagar (2017)(Sapre and Sikri JJ) and Justice Chandrachud’s dedicated segment of law and economic analysis of right to privacy in the landmark case of Justice K.S. Puttuswamy (Retd.) v. Union of India (2017). Also, importantly, in the recent few years, the majority party led Government in India has witnessed significant policy reforms and associated legislations such as Real Estate (Regulation & Development) Act 2016, Insolvency & Bankruptcy Code 2016, recent amendments to the Patent Act 1970 etc. heavily influenced by the efficiency argument. The logic of the Law and Economics methodology stems from the understanding that legislations have the power of anticipating the potential concerns, and thus put in place ex ante safety systems and look at effective ways of resolving disputes as an ex-post mechanism thus reducing social costs by way of preventive and curative remedies. Such measures release social surplus and contributes to development. The questions that this discipline is concerned with mandate an efficiency approach to legislation and justice dispensation, say, for example, how can a court or a legislature better sanction a criminal act at a lower social cost?

A Holy Alliance

The birthplace of law and economics, as the legend goes, was the University of Chicago, which boasted of economics legends such as Ronald Coase, Richard Posner, Milton Friedman, Gary Becker, Eugene Fama, and the list goes on, collectively comprising of many Nobel laureates in economics and globally influential economists. But this is exaggerating the truth as law and economics in the US is traced back to Daniel A. Raymond’s The Elements of Constitutional Law and of Political Economy, published way back in 1840. Wide-ranging economic analysis of legal policy in the United States was first undertaken during the Progressive Era, when the marginalist revolution in economic thought inspired a great deal of interest by economists in various problems of legal policy. So one could conclude that law and economics was robust long before Ronald Coase’s 1960 article on The Problem of Social Cost. However, Coase’s article along with the founding of the Journal of Law and Economics in 1958 saw the revival of the subject, after being dampened by the years of welfare economics revolution of the 1930s and 1940s. That subject has never looked back since then. The great successes of the subject thus far have lain in its normative studies of legal rules and institutions affecting choice, and its empirical studies of the efficiency effects of legal rules, thereby becoming a niche tool for today’s lawyers, judges and legal policy makers. This challenges the rigid compartmentalisation of disciplines in law schools in India, a divorce which sooner or later, we must understand is not creating maximum joint profits on any side and for anyone.

The publication of John Rawls’ A Theory of Justice in 1971 is often claimed to have marked the rebirth of political philosophy after a period of somnolence. Rawls’ work drew on the classical social contract tradition, especially Kant, but combined it with insights gleaned from contemporary game theory and rational actor models of behaviour derived from economics. Rawls’ ambition, as Prof. Steven Smith of Yale University, writes, was to “re-establish the grand tradition of political philosophy at a time when it was widely considered moribund.” His work had the virtue of breathing in new life into a dying field. Before that, it had been reduced to examining previous philosophers and their thoughts, giving birth to a school (if I may term it so) of ‘history of political thought’ which examined political ideas in their historical context. Rawls invoked many new debates, particularly on justice, equality and fairness, attempting to depart from overburdening human history and the constant demand on his predecessors to merely reconcile with history. But even he, being one of the greatest legal and political philosophers couldn’t deny the omnipresent field of economics or rather he understood its importance in law all the more at that time. Not so surprisingly, it pervades all fields of law and even all other disciplines. John M. Keynes’ famous words on an ‘apolitical person toll a piercing note: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”Not to bind ourselves with any disciplinary anachronism but one of India’s greatest intellectuals, Dr. B.R. Ambedkar was as equally a brilliant economist as he was a lawyer. The list of such people go on and the relationship between these two otherwise compartmentalised subjects are more innate than our thoughts and philosophy permit.

The Movement in India

In the 1990s, Professor Hans-Bernd Schäfer and Professor Claus Ott of the University of Hamburg offered a three week course on Law and Economics at the Centre for Economic and Social Studies. This was organized in collaboration with the University of Hyderabad and the Andhra Pradesh Open University. The course was watershed, in the sense that it marked a prelude to Professor Schäfer’s significant contribution to law and economics in India and also, more importantly, because it marked the subject’s entry into the Indian academia. The National Law School of India University, Bangalore (NLSIU) would be the first Indian law school to witness the tryst between law and economics. Prof. W. Rainer Walz, Law Faculty of the University of Hamburg, had delivered lectures at NLSIU in a University Grants Commission (UGC) refresher course, 1994.

In 2000s, IIT Kanpur and the Gokhale Institute of Politics and Economics (GIPE), Pune, Jawaharlal Nehru University, and Delhi University were one of the first higher educational institutions in India to introduce courses on law and economics. The former having introduced it as a compulsory course for the 5-year integrated MSc program in Economics back in 2005 and the latter having introduced it as a full-fledged course back for MA course in 2003. Gokhale Institute had started off with the subject being optional and recently in 2011, IIT Kanpur made the course a departmental elective and. In addition, IIT Kanpur has offered several short-term courses on Law and Economics, since 2005 under the Quality Improvement Program, All India Council for Technical Education (AICTE). It recently organized the 2nd International Law and Economics Conference, 2016 in association with Gujarat National Law University (GNLU) and IIM Ahmedabad. The conference paved the way for creation of Indian Association of Law and Economics (IALE) and Prof. Panta Murali Prasad, Associate Professor of Economics at IIT Kanpur became the first founding President of the Association. In 2006, Prof. Schaefer offered a short one-week course on “Law and Economics of Development” as part of the Asia Link Program on Law and Economics, a course which attracted a significant number of participants, concretising the subject’s existence in Indian legal academia.

Gujarat National Law University (GNLU) became the first national law school which offered Law and Economics as a core subject as a part of the 5-year integrated B.A. LLB (Hons.).The GNLU Centre for Law and Economics (formerly the GNLU Law and Economics Committee) came into existence in 2015 after it hosted the 1st edition of the International Conference on Law and Economics together with IIT Kanpur and IIM Ahmedabad which brought together an august gathering of widely revered academicians and experts, nationally and internationally, in the field of law and economics. In a sequence of inexorability, the centre has since then grown manifold, having conducted various certificate courses in the field and also having undertaken research projects with various foreign universities. GNLU’s publications in law and economics are one of the very few works that actually tried to take up an Indian discourse in the subject. The Centre has also, notably, taken up the Clean Ganga Project among other significant projects, in collaboration with Professor Regis Lanneau and the University Paris Ouest Nanterre la Défense, which aims to understand the poor conditions of the River Ganga and develop situations using tools of law and economics.As Prof. Hans-Bernd Schäfer notes, “Gujarat National Law University developed into a renowned centre of teaching and research within the discipline of law and economics in India. It has organized illuminating workshops and lecture series in this field and played a pivotal role in establishing the Indian Law and Economics Association.”

Hopes and Prospects

Prof. (Dr.) Ranita Nagar of Gujarat National Law University is of the opinion that this is a subject that every lawyer applies without formally knowing it because the language of law is economics driven when dealing with clients who come from commerce and corporate background. What’s more is that, as Dr. Nagar predicts, learning this subject becomes very important to a law student as it exposes one to high-powered scientific reasoning and helps create a set of skill which can really give a student (especially in India) the competitive edge in the future. Law and economics is concerned with the legal treatment of market failures, it is the subject that helps students understand the effects of legal rules on the behaviour of relevant actors and also if such legal rules are socially desirable. Mr. Avinash Ganu, founder, Avinash Ganu and Associates and Visiting Professor at Gokhale Institute of Politics and Economics sees great prospects for law students in India who decide to pursue this subject, prospects both in the academia and the legal profession.

Both Mr. Ganu and Prof. Panta Mural Prasad have called for a collective intellectual movement across law schools in India, in order to explore the wide scope of this subject and mine the existing knowledge base. For this, Prof. Prasad feels that the borders between the institutions must be scaled, urging a joint effort by students and professors of law and of economics for steering forward the subject and exploiting its high value to better laws and governance in India. What stops us is our rigid disciplinary approach and our fragmentations in our Universities i.e. learning and applying subjects categorically. As noted above, for a law student, this subject has the potential to broaden one’s legal acumen significantly and this is exactly what Justice A.K. Sikri stressed on during his speech at the 3rd International Conference on Law and Economics 2017, saying that “economic implications are relevant in cases related to property, privacy, business law, bankruptcy law and many others and therefore it calls for an economic analysis of law. It can impact jobs, government revenue and economic growth. Sometimes, economic aspects are predominant. Courts are becoming increasingly receptive to this approach.”

The subject is still restricted to a handful of people in the Indian academia and the legal system today and this could change if both started interacting, if both started a dialogue through collaborative research projects, with law schools helping lawyers and judges learn this subject through capacity building or else by even collaborating in research for ongoing cases. The Supreme Court’s delegated signalling of this subject’s indoctrination into the legal system helps, but it would be even better if such innovative ideas came from, say, the University Grants Commission i.e. if this subject were to be institutionalised. But the real change can come only if an intellectual movement propagating the subject were to ever follow. NUJS Kolkata for example organised the GIAN Course of Law and Economics back in 2016, and NALSAR Hyderabad had published the Indian Journal of Law and Economics in 2011 which was discontinued soon after. A significant mark of any intellectual movement is always the birth of quality journals and this is much the need of the hour, the way in which the birth of the Journal of Law and Economics in 1958 is considered the birth of the 20th Century law and economics movement. The prospects look great at the moment with law schools slowly embracing the subject. Maharashtra National Law University, Mumbai has recently introduced the subject as a core paper.

Deviating from the neoliberal rigidity of the ‘Chicago Boys’, the movement in India, coupled with Indian judiciary’s historic leaning towards democratic socialism, has created a science of law more than any particular ideology of law, without any significant departure from the basics of the original movement of University of Chicago.

Swagat Baruah is writer/editor at Catharsis Magazine.

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