Source: The post India needs stronger contract enforcement for economic growth has been created, based on the article “Efficient contract enforcement would brighten India’s prospects” published in “Live Mint” on 13th August 2025. India needs stronger contract enforcement for economic growth.
UPSC Syllabus Topic: GS Paper2-Government-dispute resolution
Context: Efficient contract enforcement is vital for competitiveness. In India, delays and uncertainty cost 1.5–2% of GDP annually, with greater opportunity losses from deferred investments. Early reforms improved timelines, but progress has slowed, leaving India poorly ranked globally.
Economic Impact and International Models
- Heavy Economic Costs: Procedural delays act as a hidden tax on enterprises. Opportunity costs are two to three times higher than direct GDP losses due to postponed investments.
- Lessons from Leading Economies: Countries like the US and China strengthened dispute resolution systems to boost investment and growth.
- The US Approach: The Federal Arbitration Act, expert judges, and specialized commercial divisions in states like New York and Delaware ensure efficient enforcement. Structured case management and judicial expertise support quick resolution.
- Cross-Border Dispute Handling: The US follows the New York Convention and maintains specialized commercial courts for international disputes, enabling strong investor confidence.
India’s Reform Experience
- Gains from 2014–2018: The Commercial Courts Act, amendments to the Arbitration and Conciliation Act, and creation of the Mumbai Centre for International Arbitration reduced average enforcement time in Delhi and Mumbai from 1,445 days to 626.
- Post-2019 Slowdown: Few reforms, like the Mediation Act, have been enacted. India’s global ranking on contract enforcement remains low.
- Persisting Structural Issues: Design gaps in courts and lack of a consistent pro-arbitration stance hinder sustained improvement.
Core Challenges
- Appeal-Driven Litigation: Wide grounds for appeal, absence of a “loser pays” rule, and weak court scrutiny encourage frivolous challenges.
- Government as a Major Litigant: PSUs and government bodies are frequent litigants, often contesting awards and delaying resolution.
- Weak Arbitration Infrastructure: Dependence on ad-hoc arbitration and lack of credible domestic institutions push companies to costly foreign forums, excluding MSMEs from efficient resolution.
Reforming Arbitration and Courts
- Strengthening Domestic Institutions: Governments should fund and support independent arbitration bodies, improve caseload handling, and enhance credibility.
- Narrowing Appeal Grounds: Legislation should restrict public policy appeals and limit judicial interference.
- Pro-Arbitration Judicial Stance: Ensure award finality, apply penalties for frivolous appeals, and make domestic seats mandatory for government contracts with pre-appeal screening.
- Making Commercial Courts Effective: Raise monetary thresholds, focus on high-value complex cases, appoint trained judges with longer tenure, build digital systems, and benchmark performance for accountability.
Cross-Border Dispute Resolution
- Weakening Treaty Network: India has cut Bilateral Investment Treaties from over 68 to fewer than a dozen, weakening investor protection.
- Reform Opportunities: New trade agreements should enable time-bound dispute resolution, fast-track award enforcement, and better investor safeguards.
Conclusion
Legal certainty is as critical as tariff stability. Judiciary, executive, and legislature must work together to ensure timely, reliable, and investor-friendly contract enforcement for sustained growth
Question for practice:
Examine the key challenges and reform measures needed to strengthen contract enforcement and dispute resolution mechanisms in India.
