Establishing a true Rule of Law in trade and investment matters will help India gain tremendously.
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India and the "Rule of Law"
- The story: India wants itself to be known as an attractive investment destination for manufacturing. There are ambitious targets of achieving $ 1 trillion in annual exports and $ 5 trillion in GDP within the next few years.
- Role models: Amongst the examples for pursuing growth through trade and investment are countries of East Asia that grew rapidly in the past three decades. Some of these are not democracies and a few are held by many to be non-market economies. One hears of the predictability and decisiveness of the regulatory authorities in these countries, which is then contrasted that in India, and it is held by many to be a complex jurisdiction to deal with.
- Governance style: The governance style and ethos are often more important than the physical infrastructure for trade and investment. They go a long way to contribute to the confidence of the external as well as the internal investors.
- India is a democracy with its governance system premised upon rule of law. The Chief Justice of India, N.V. Ramana has very aptly emphasized, in writing and action, upon rule of law as one the foundational principles of our society and polity.
- Thus, in theory, the implementation of laws, rules and regulations and dispute redressal systems are dependent only to a certain extent upon persons.
- So in India, every business has access to legal remedies against actions of the state. Such a system thus gives assurance of a law driven rather than person driven resolution of regulatory issues faced by businesses. Contrast this with an authoritarian system wherein a local, state or federal official can take a quick decision in a matter affecting a business, can even get written policies amended in less than a day, but there is little legal recourse available against it.
- Rule of Law: Two important aspects of rule of law are stability and predictability, both needing improvement. When we consider the retrospective legislation in taxation matters, theyt have heavily dented India’s image as an investment destination. It may not be in violation of the law, but stretches the concept of rule of law almost to breaking point.
- Businesses deal with authorities like Customs, Indirect and Direct Taxes, Departments of Trade and Commerce, Bureau of Standards and the like. Officials are vested with executive as well as quasi-judicial authority. A common grievance of many who deal with these departments, is that decisions are often taken by authorities without sufficient appreciation of facts or rigorous legal position.
- The underlying premise followed is that those affected can anyway get relief in appellate forums like Tribunals, High Courts or the Supreme Court. Such relief is, however, time consuming and such an attitude getting ingrained in lower level judicial or quasi-judicial forums goes against the very concept of rule of law.
- International agreement: Rule of law for trade is visible in the international sphere too. Governments enter into agreements and implement internationally applicable rules in their trade and tax governance. The WTO is based on such agreements, as arethe regional/bilateral trade agreements and tax treaties. Governments must rigorously implement the agreements/treaties which they are signatories to and take reasonable interpretations of clauses. Not doing so would contribute to a chaotic world order, mar the country’s reputation and in some cases invite retaliatory action by other nations. This too is an area in which India can do better than the present and showcase itself as a model jurisdiction inspiring confidence in domestic and international businesses.
- A long-term project: For India, deepening the ethos of rule of law in overall governance will not be a short-term project. In matters relating to trade and investment, a few measures could lead to early results.
- The accountability of officials in relevant departments should be based on their rigorous application of the law rather than on their taking decisions that favour the state in the short term. It can vastly improve the quality of administrative and quasi-judicial decisions.
- A sufficient number of competent legal experts could be appointed in departments of the executive to guide administrative actions.
- Summary: So India, with its market and talent potential, can indeed become a favoured destination for trade and investment, but strengthening both its internal and external operation of the rule of law is now urgently required.
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