ECONOMIC IMPACT OF JUDICIAL DECISIONS

BY AMAN SINGH

LEGAL INTERN, H.K. LAW OFFICES

The various judgements delivered by higher courts and quasi-judicial bodies directly or indirectly have far-reaching economic impact on the country. It is because economic impacts are not taken into account while decision making, court do not analyse the economic costs associated with a decision pronounced by it and the situation further worsens when judicial activism comes into play. A lack of economic analysis while passing judgement has the potential to create an adverse impact on employment, growth of infrastructure, hospitality, tourism, real estate and other economically relevant sectors such as revenue of state and Central governments, and balance sheets of banks and financial institutions, without having the desired positive impact on social behaviour.

In 2016, the Supreme Court of India in the case of State of Tamil Nadu v. K Balu & another,[1] decided to prohibit sale of alcohol on Highways within a distance of 500 m so that accidents can be avoided. In a study,[2] conducted by CUTS International (Consumer Unity & Trust Society) analysed that due to the judgement, ‘retail outlets’ which includes hotels, clubs, restaurants, vends and bars, felt significant adverse economic impact. The total economic loss of retail outlets in the state of Uttar Pradesh, Delhi, Haryana and Rajasthan was estimated to be approximately INR 180 Crores. The hospitality industry, estimated an economic loss of INR 10,000-15,000 Crores and job losses of 100,000 all over the country.[3] The alcohol market in India is one of the fastest growing markets which is expected to reach 16.8 billion litres of consumption by the year 2022,[4] therefore any disruption into this market would significantly impact the economy.

In another case of Vedanta Limited Unit v. State of Tamil Nadu,[5] related to copper smelter plant in Thoothukudi, Tamil Nadu. The plant is not in operation from March 2018 because it was shut down by the Government of Tamil Nadu after the long protest from locals as they believed that plant was polluting their environment as well as causing a range of health problems. Vedanta Limited which owned this plant moved to Madras High Court, challenging the Tamil Nadu government’s move to close its Sterlite Copper plant. The Madras High Court in its judgement said that the copper plant will stay closed. Since the plant was shut down, India became a net importer of copper cathodes. India was among the top five exporters of copper cathodes in 2017-2018 and from the beginning of 2018-2019, became a net importer. The company itself lost about $200 million in profits on account of plant shutdown.

In 2018, responding to a PIL filled by Goa Foundation,[6] Supreme Court quashed 88 mining leases granted by the Goa government for violating procedure and ordered that fresh licences be granted through a bidding process. A study on the socio-economic impact of this decision was carried out by IIT Dhanbad,[7] which said that “the survey results clearly demonstrated a sense of all-round gloom in the state economy and social life.” The closure of mining has dealt a devastating blow to the livelihoods of people which includes both in mining and non-mining areas. Agriculture, art and craft, tourism and all allied industries have suffered because of suspension of mining activities. “With mining closure, the drop in income level has been very sharp not only in mining talukas but the impact has been felt all across Goa. Post closure, there has been at least a 30 per cent drop in income across talukas and in some talukas like Mormugao the drop is as high as 50 per cent”. Stoppage of iron ore mining in Goa has impacted revenues worth over Rs 34 billion and the livelihoods of several dependent segments have been affected and left the stakeholders of the industry without any alternate sources of income. The closure has resulted in loss of direct and indirect employment and has affected over 3,00,000 households in Goa. The total contribution of mining and its activities to Goa’s state gross domestic product (GDP) has been much over 15 per cent. For two consecutive years, the Goa government in its annual budgets has conceded that around 20 per cent of its GDP decline is attributable to mining. The halt of mining activity has led to major loss of investor confidence which would have a long-term negative impact on Goa’s economy, the study observed.

In the case of Shivashakti Sugars Ltd. v. Shree Renuka Sugar Ltd,[8] the Supreme Court was dealing with a case wherein the High Court had ordered the closure of a sugar factory for violating the minimum distance requirement. The Supreme Court while quashing the order of closure succinctly highlighted the interplay between economics and law and the need to keep economic considerations in mind while pronouncing judicial decisions. It observed that “the Court needs to avoid that particular outcome which has a potential to create an adverse effect on employment, growth of infrastructure or economy or the revenue of the State. It is in this context that economic analysis of the impact of the decision becomes imperative.”[9] This judgment is considered as a paradigm case for law and economics in the judicial sphere for considering the economic impact of judicial decisions. It is thus important for the judiciary to conduct sound economic analysis before arriving at decisions and efficiently communicate the rationale of its decisions. It needs to be recognized that the economic impact of judicial orders could be direct or indirect and different stakeholder groups could be differently affected. Accordingly, capacity building within the judiciary to balance different competing interests will be needed. The economic impact assessment of judicial decisions can also aid in upholding the credibility of the judiciary and the quality of judicial decision making, which is increasingly coming under scrutiny. Judges need to understand the complex linkages between various areas of governance and economic and legal activity today to ensure delivery of economically responsible justice.


[1] Civil Appeal Nos. 12164-12166 of 2016 arising out of Special Leave Petition SLP (C) Nos. 14911-14913 of 2013

[2] Economic impact analysis of Supreme Court judgement prohibiting sale of alcohol on highways

[3] Liquor Ban Impact estimated at Rs 65k crores in revenue foregone by states and hospitality industry

[4] Indian Alcohol Consumption Report 2017

[5] W.P. No. 13144/2018

[6] The Goa Foundation vs M/S Sesa Sterlite Ltd. And Ors. 2018

[7] Study on impact of stoppage of mining in Goa on socio-economics

[8] (2017) 7 SCC 729: 2017 SCC Online SC 602

[9] (2017) 7 SCC 729: 2017 SCC Online SC 602, para 44.

Published by meghachaturvedi

Associate Partner, H.K. Law Offices

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