EH.net is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

Law and the Economy in a Young Democracy

Author(s):Roy, Tirthankar
Swamy, Anand V.
Reviewer(s):Iyer, Lakshmi

Published by EH.Net (September 2022).

Tirthankar Roy and Anand V. Swamy. Law and the Economy in a Young Democracy. Chicago and London: The University of Chicago Press, 2021. ix + 298 pp. $45 (cloth), ISBN-13: 978-0-226-79900-1.

Reviewed for EH.Net by Lakshmi Iyer, Department of Economics, University of Notre Dame.

 

This book describes the evolution of the legal framework in India after the country became independent in 1947. The book considers various aspects of the law that are important in shaping economic activity: laws on property rights, credit markets, labor markets, environmental issues, company regulation, and economic globalization. The authors, both eminent economic historians, provide an extremely well-written narrative on the political economy of law over this period, complemented with surveys of more detailed empirical research on specific topics. They provide both a bird’s-eye view of the overall legal structure and detailed discussion of some key legal judgements that set important precedents. I describe below some major contributions and findings of this book.

A key goal of the book is to understand how existing laws have emerged and evolved. The authors describe how much of the legal structure was a continuation of colonial era policies, what changes were implemented in a newly independent India and how subsequent political and social developments, such as the rising political power of disadvantaged sections of society, led to changes in the law. (More details about law in the colonial period are provided in their 2016 book Law and the Economy in Colonial India, also published by The University of Chicago Press).

Their narrative highlights three key factors that shaped legal evolution. The first is the viewpoint of policy makers and legal scholars, who considered poor Indians to be incapable of making good economic decisions. Such a worldview led to laws such as those outlawing agricultural tenancy in many states, since it was presumed that a tenant would automatically be exploited by a landlord. Similarly, forest-dwelling tribal people were restricted in their ability to transfer land to non-tribals. Private moneylenders were widely believed to be “unscrupulous” (p. 58), leading to many regulatory restrictions on their activities. The authors show that such a view was very much present in the colonial period too. This stands in sharp contrast to colonial policy in other places such as Egypt where the British viewed Egyptian peasants as “able to rationally calculate their economic self-interest but unable to comprehend the collective public good” (as Johan Mathew put it an EH.Net Review of Aaron G. Jakes’s Egypt’s Occupation).

Second, a related aspect of this worldview was a strong distrust of markets and private market participants, mainly because of the potential for highly unequal economic outcomes. Many legal restrictions on market activity were enacted in the “public interest,” including interest rate ceilings, restrictions on land transfers and asset redistribution, even when this involved expropriation of private property. Again, this concern with avoiding extreme inequality mirrors the British Raj’s concern with maintaining political stability at all costs. The distrust of markets was paired with a strong belief in the ability of government and social institutions to deliver economic growth, as shown in the state’s extremely strong powers of eminent domain (Chapter 3), the higher interest rates allowed to public or cooperative lending institutions (Chapter 2) and the provision of workfare programs to combat unemployment (Chapter 6).

Third, the authors’ narrative highlights the interplay between the legislative and judicial branches of government. Many legislative initiatives, such as the land redistribution efforts in the 1950s, were successfully challenged in court by landlords. Following this, further legislative changes were implemented that effectively prevented judicial review, culminating in a constitutional amendment whereby the right to property ceased being a fundamental right of Indian citizens. The pattern of events suggests that political actors were usually able to overrule judicial checks in the first four decades after independence.

A striking exception is environmental law, where the Supreme Court of India provided a broad interpretation of the “right to life” provision of Article 21 of the Constitution to include considerations of health and environmental quality (Chapter 5). Through a series of judgements, the Supreme Court and lower courts incorporated principles such as “polluter pays,” the precautionary principle and intergenerational equity into environmental law. It is interesting that unlike the previous case of land reforms, these were not overturned by further legislative action, perhaps because the legislatures shared the view that such action was necessary or because they were afraid of the bad publicity caused by environmental disasters.

Another major contribution of the book is to assess whether the legal framework met the goals of increasing economic growth and reducing poverty and inequality. The authors review many empirical studies on this topic, and conclude that, unfortunately, it did not. In some cases, it was because the legal system was not the binding constraint on growth. This is particularly the case in the pre-1991 period, where the economy was greatly constrained in terms of capital and technology, and in the case of credit markets where the lack of insurance against crop volatility was a major constraint. The book also describes many cases in which the legal provisions themselves had the perverse consequence of reducing economic efficiency. Restrictions on land ownership resulted in a lack of transparency of land records which inhibited productivity-enhancing transfers; outlawing of tenancy made it hard for de facto tenants to use their occupancy rights on land as collateral to obtain credit.

I believe the book would be even better if it had more detail on the structure and incentives of the judiciary itself. It would be interesting to discuss how the fact of having an independent judiciary (unlike, say, China) shaped India’s legal developments. Has the judiciary become more or less independent over time? How do the social identities and/or political affiliations of judges shape the nature of judicial decisions? What can be done to increase the speed of judicial decision making in India?

Overall, the book provides a great overview of post-independence legal developments in India, and their effects on economic activity. It should be required reading for anyone interested in India’s recent economic history.

 

Lakshmi Iyer is Associate Professor of Economics and Global Affairs at the University of Notre Dame. Her primary research fields are development economics, political economy and economic history, including property rights institutions in India, Vietnam, China, and Myanmar.

Copyright (c) 2022 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (September 2022). All EH.Net reviews are archived at https://www.eh.net/book-reviews.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economic Planning and Policy
Economywide Country Studies and Comparative History
Government, Law and Regulation, Public Finance
Geographic Area(s):Asia
Time Period(s):20th Century: WWII and post-WWII