In the summer of 1991, Prime Minister Narasimha Rao and his Finance Minister, Manmohan Singh, embarked upon their bold agenda to reform India’s economy and regulatory framework. The set in motion a series of changes to transform India’s tightly regulated and state-controlled economy into a more market-friendly one. In the early years, their “new economic policies” were the subject of considerable criticism — the political and intellectual skeptics were many and the condemnation harsh. Yet, the Narasimha Rao government persevered with the reforms even if slowly and hesitantingly until it was defeated in the 1996 General Elections.
Fourteen years later, the reforms are no longer “new.” Many former critics have either quietly endorsed or grudgingly acknowledged the inevitability of market-friendly economic policies and deregulation. This acceptance has been even especially notable in the political arena (although there have been some notable consistent critics of liberalization and deregulation). Five governments have held office since the Narasimha Rao government was defeated in the 1996 General Election. They range from the Deve Gowda-led United Front regime to the Manmohan Singh’s present UPA administration. Each of these post-1996 administrations were coalition governments. They were each formed through complex post-electoral permutations that brought together political, electoral, and ideological friends and foes. As a consequence, virtually every faction of Indian politics from the ideological left to the extreme right has been part of the government at one point or another.
Three of these coalitions (Deve Gowda, Gujral, and Manmohan ministries) included either communist ministers or relied on left for parliamentary support. The two other Vajpayee-led governments included representatives from nationalist parties who were opposed to foreign investment. Yet, none of these post-1996 administrations attempted to roll-back or dramatically reverse the course of India’s economic reforms. For this reason, one could argue that there is a broad express or implicit political acceptable that Indian economic reforms are necessary although there are sharp disagreement about how they should be implemented.
As we enter the “crystal” anniversary of the reforms, there have been several thoughtful essays assessing India’s achievements and pitfalls in transforming its economy. These essays have largely focused on the political and economic aspects of the reforms. But little attention has been paid to the legal aspects, especially, the judiciary’s attitude toward the reforms. This situation is puzzling since, as with most things in Indian public life, our Courts exert tremendous influence on policy and legislation – or at least they (and we, lawyers) blithely think they do. Yet, it is hard to dispute the fact that there is virtually no subject on which our judges have not commented — either in a formal judgment or opinion or in “off-the-cuff” observations made in open court or at public forums. Therefore, understanding our judiciary’s attitude (which is not necessarily consistent) and economic philosophy is an important task that can no longer be neglected.
Indian courts and judges are not strangers to complex economic issues or controversies. They have been handling cases with economic implications since the Constitution was inaugurated. Through 1950s and 1960s, and until the Bank Nationalization Case in 1970, the Supreme Court repeatedly examined the validity of economic law and regulatory decisions, especially those involving acquisition of property or expropriation of a business. The Court struck down many of these measures, including constitutional amendments, for violating the right to property. This led to the famous Kesavananda Bharati Case, where the Court outlined the “basic-structure” limitations on Parliament’s amending powers.
In the 1970s and 80s, however, the Court’s attitude toward economic matters, especially with respect to enterprise and property dramatically changed. It endorsed a large number of the economic laws and nationalization decisions. The Court’s composition had radically altered from the 1960s. A new generation of “committed” judges, who were a lot more ideologically aligned with the government’s views, were appointed to the bench. They readily upheld economic laws and measures in flowery language that extolled our Constitution’s socialist basis and extolled the virtues of a state-controlled economy. The Indian Supreme Court of the late 1970s and 1980s, notably Justices Krishna Iyer, Chinnappa Reddy, and D.A. Desai, judicially reversed the Constitution’s express injuction against enforcing the Directive Principles, and repeatedly invoked those principles in its new socialist jurisprudence. They were aided by the Forty-Second Amendment to the Constitution, which inserted the word “socialist” in the Preamble. As Justice A.M. Bhattacharjee says, this led the Court to hold in Excel Wear v. Union of India, AIR 1979 SC 25, that courts could not “lean more and more in favour of nationalisation and state-ownership of industries.”
This understanding of our Constitution’s economic philosophy continued well into the early 1990s. It is best exemplified by the 1993 Unnikrishnan Case in which the Supreme Court virtually closed the door to new private engineering and technical colleges to avoid commercialization of higher-education. Then, in 1997, almost six years after deregulation began, the Court declared “socialism” to be a basic feature of the Constitution. In Samatha v. State of Andhra Pradesh, AIR 1997 SC 3297, the Supreme Court declared:
It is necessary to consider at this juncture the meaning of the “socialism” envisaged in the Preamble of the Constitution. Establishment of the egalitarian social order through rule of law is the basic structure of the Constitution. The Fundamental Rights and the Directive Principles are the means, as two wheels of the chariot, to achieve the above object of democratic socialism. The word “socialist” used in the Preamble must be read from the goals Articles 14, 15, 16, 17, 21, 23, 38, 39, 46 and all other cognate Articles seek to establish, i.e., to reduce inequalities in income and status and to provide equality of opportunity and facilities.
Despite this rhetoric, the Court hesitated to invoke this socialist reasoning in some early cases relating to the new market-friendly policies. This reluctance is especially striking in Delhi Science Forum v. Union of India, AIR 1996 S.C. 11, where petitioners challenged the New Telecom Policy. They alleged that the new policy compromised national security and India’s economic interests. The Court rejected the petition ruling that the In its judgment, the Court pointed out that the telecom policy had been placed before parliament and it could be inferred that parliament had approved the policy. It held that the judiciary was generally reluctant to interfere in economic policies.
This position was emphasized in subsequent decisions, notably, BALCO v. Union of India, AIR 2002 SC 350. There, Chief Justice Kirpal, reached back to the Bank Nationalization Case to declare that the Court could not consider the relative merits of different political theories or economic policies. Applying this reasoning, Kirpal held that the Supreme Court could not examine whether the government’s disinvestment policy is desirable or not. Citing several previous decisions, Kirpal observed that the Court could not examine whether a particular policy was wise because a better policy could have been evolved. Disinvestment is a policy decision involving complex economic factors. Courts have consistently refrained, Kirpal wrote, from interfering with economic decisions as they cannot be judicially evaluated. BALCO has since been cited in a few other Supreme Court and High Court decisions.
Despite the implicit endorsement of the new economic policy in BALCO, our present Supreme Court has yet to decide what to do with its several earlier decisions extolling the value of socialism and declaring that it is firmly rooted in our constitutional jurisprudence. As Justice Bhattacharjee notes:
In several decisions, the Supreme Court has taken note of this “recent liberalised free economy” and that as a result “private and multinational entrepreneurship has gained ascendancy and become entrenched into wider commercial production and services, domestic consumption of goods and large-scale industrial production” and that even “public corporations are thrown open to the private national and multinational investments”.
But the Supreme Court has not adverted to or considered the legality and constitutionality of this policy in the context of socialism being a basic feature of the Constitution.
How, then, should we view the earlier decisions on socialism? Are they inoperative precedents that the Court has either impliedly overruled or won’t refer to anymore? Does the principle of judicial non-interference in economic policy trump the Court’s earlier findings that socialism is a basic feature? Sooner or later, the Court will have to confront this inconsistency in its jurisprudence.
