Legal Reforms and Investment Prospects in India

A Long Road to go

India has huge potential to become an economic superpower. Its population stands at over a billion, making it the second largest population in the world; the middle class alone is greater than the population of the United States or the European Union. It has the fourth largest economy in the world and the second largest GDP of developing countries. The consumer market is growing at a rate of eight percent each year and India’s strategic location offers easy access to the sizeable South Asian market. 

Despite this, however, India has failed to live up to expectations, and foreign investment has not been as high as could be expected in the country. As reported in The Economist: “the system just does not work as it is supposed to. The rules may be liberal in principle (…), [but] delays, complexities, obfuscations, overlapping jurisdictions and endless request for more information remain much the same as they have always been.” 

Other roadblocks to international competitiveness include a serious paucity of legal standards and legislation on vital areas of concern, including data privacy and protection, intellectual property rights and copyright. Compounding this issue are the crippling deficiencies inherent in India’s legal system that create a virtual lack of recourse to the law, even where the law should theoretically afford the necessary protection; it is rare, as will be seen, for any civil litigation to be successfully pursued in Indian courts in a reasonable time-frame. 

Inefficiencies in the law 

According to India’s Ministry of Commerce and Industry, “[t]he importance of intellectual property in India is well established at all levels- statutory, administrative and judicial.” Establishing the importance of intellectual property, however, does not equate to establishing rights or laws that afford actual protection to intellectual property. 

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which outlines the basic requirements for protecting and enforcing intellectual property rights, came into force in India at the start of 1995. India is also party to the 1883 Paris Convention for the Protection of Intellectual Property and the 1928 Berne Convention on copyright.  

While Indian laws comply with the minimum standards, those standards are not always sufficient to create the necessary protection or incentive for foreign investors. Under Indian copyright law, for example, a litany of exceptions applies, allowing for the free use of copyright works in educational and religious institutions, in journalism, public libraries and many other areas. There are also very serious issues in India with the enforcement of existing IP laws, in that they are not enforced, thereby rendering IP protection in India ineffective. 

The result is that piracy rates in the entertainment sector, business software, factories, hard disk loading, Internet and books are soaring, with few attempts being made to reduce them; laws remain weak and law enforcement weaker; the criminal system is cumbersomely slow and expensive, and civil cases are equally slow if not slower, with damages rarely granted. It is estimated that nearly US$ 465 million was lost in 1994 due to copyright piracy in India. 

Some measures taken by India to improve this situation include the Information Technology Act of 2000, which defines ‘data’ but remains silent on data protection. The Act creates a special appellate court to investigate violations, but considering the speed of Indian courts in dispute resolution, the solution is hardly satisfactory. The only laws on personal data that currently protect businesses in India are those data privacy laws from foreign jurisdictions, including the US and the European Union, that apply overseas. A lack of legislation in India is also creating barriers for businesses from EU Member States, as a 1995 Directive on Data Privacy obliges Member States to create a legal framework that protects personal data used outside of the State, meaning that personal data cannot be transferred to third countries that do not provide ‘adequate protection.’ India does not provide the requisite adequate protection. 

The Indian judicial system 

‘Welcome to India: The Largest Democracy in the World’. This is the billboard greeting that those who cross the border into India from Pakistan by land see first. India is widely known, and enjoys being perceived as, the largest democracy in the world. This is not well reflected, however, in its judiciary or in the investment by the Indian government into the country’s justice system; the 2006-2007 budget provides for a 20 billion US dollar increase in defence spending, while the government plans to spend a mere 0.08 percent of its resources on the entire Law and Justice department, which amounts to a total of just over US$ 45 million. 

The consistent paucity of resources allocated to the Law and Justice Department takes its toll on the potential and efficiency of the justice system. India suffers from chronic judicial delay, with an extraordinarily long time span for a typical civil litigation, and a backlog of cases of up to an estimated 25 million. For example, in 1997 there were 3.18 million cases pending in India’s High Courts alone, with some civil cases taking more than 20 years to come to court. It is clear that the present system renders the courts incapable of resolving cases within a reasonable time, which means that contractual obligations are functionally almost impossible to enforce, and those remedies that are eventually provided are of little value. Overall, judicial delay and inefficiency render public and private rights and obligations virtually unenforceable and therefore worthless. 

No wonder then that large corporate firms choose to forego legal redress in India, opting, wherever possible, for the more organised legal systems of the United States or the United Kingdom. A recent example is that of a dispute between two private airline companies, which is being sought to be settled through arbitration, not in New Delhi or Mumbai, but in London. 

Judges are poorly paid, overworked and frequently transferred; it is not uncommon for judges to have a workload that is 500 times that which they are physically capable of achieving. The result is cases being constantly adjourned and postponed. While judges have the authority to change procedures in order to speed them up, they rarely use this authority to effectuate any significant change. More fundamentally, India has a seriously low ratio of judges per head of population, with only 13 judges per million people, despite decades of government promises to increase this ratio to 50 per million people. Even this figure, if achieved, would be far less than that of the US which, by comparison, has a ratio eight times this figure, standing at 107 judges per million. 

Court systems continue to spurn the transition to modernity and remain antiquated, with hand-kept records and inconsistent classification systems making it difficult to locate documents, and easy to misplace and lose them. Judges give oral summaries of cases to court reporters as testimony, as there is no mechanized reporting system; evidence can only be given and collected in court, and no time restrictions are imposed, further exacerbating delays. In fact, it is common for parties not to appear in court at all, and much time is misspent calling for appearances. When parties do appear, extensions and adjournments are frequently asked for and liberally granted. An analysis of 150 cases in a Delhi court showed that a staggering 68 percent of the hearings conducted there were ineffective. 

The International Intellectual Property Alliance criminal copyright enforcement statistics for 1994 show a total of 861 copyright cases pending in Indian courts, 46 of which are for piracy of business software that have been pending for several years, and have now been time barred; one produced a conviction and one case resulted in a criminal fine. The civil damage route provides no greater satisfaction for foreign companies in India. For example, the US Business Software Alliance (BSA) has many civil cases pending in Indian courts, where the process is ‘grindingly slow’; between 1999 and 2002 they brought 13 cases against corporate end-user pirates, 10 of which have been concluded with total damages of just $54,000. Statutory fines and any fines actually imposed are too low to discourage major copyright infringements; criminal convictions for piracy are practically non-existent, and the court system is ineffective.

Conclusion

India could be a land of opportunity instead of a land of promise, and a justice system worthy of ‘the largest democracy in the world’ could assure this opportunity. All it would take is a modicum of legislative reform, a genuine commitment to enforcement, and an equitable share of the growing budget to be invested in the justice system. In this way the existing backlog of cases could be cleared, and investors could be assured of protection for the data and private information they are unlikely to want to part with. Recourse could be had for breaches of established and well-defined intellectual property laws, and India could become the economic superpower it can now only dream of being.

 Human Rights Features