The Ease of Doing Business (EoDB) index is a ranking system established by the World Bank Group.
Ease of Doing Business measures the time and cost for resolving a commercial dispute through a local first-instance court and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The data are collected through study of the codes of civil procedure and other court regulations as well as questionnaires completed by local litigation lawyers and judges. The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts.
Importance of Enforcing Contracts
- Predictability: Efficient contract enforcement provides businesses with the confidence that their contractual agreements will be upheld, reducing the risk of doing business.
- Investment: A reliable legal system attracts both domestic and foreign investment, as investors are assured of legal recourse in case of disputes.
- Efficiency: Faster resolution of disputes reduces the time and resources businesses spend on litigation, allowing them to focus on growth and innovation.
- Cost Savings: Lower costs associated with enforcing contracts make the legal system more accessible to small and medium-sized enterprises (SMEs), promoting entrepreneurship and economic diversification.
In Enforcing Contracts indicator, India achieved 163rd position (among 190 countries) in the Doing Business Report 2020, an improvement of 23 positions from the 186th rank in the Doing Business Report 2015. Ease of doing business: Why India is faltering in enforcing contracts |
2015: India was ranked 186th out of 190 economies1.
2020: India improved to the 163rd position
India's low ranking in the "Enforcing Contracts" indicator of the Ease of Doing Business rankings is primarily due to several factors:
- Time and Cost: Resolving a commercial dispute in India can be time-consuming and expensive. The process involves multiple stages, including filing and service, trial and judgment, and enforcement, which can take a significant amount of time. Additionally, the costs associated with attorney fees, court costs, and enforcement costs can be high. In India, resolving a commercial dispute takes around 1,445 days on average. In contrast, countries like Singapore and New Zealand are much faster, taking approximately 150 and 216 days, respectively. The cost of enforcing contracts in India is about 31% of the claim value. This is higher compared to countries like Singapore, where the cost is around 25% of the claim value.
- Quality of Judicial Processes: The quality of judicial processes in India, including court structure, case management, court automation, and alternative dispute resolution mechanisms, has room for improvement. Efficient and transparent judicial processes are crucial for enforcing contracts effectively. India's quality of judicial processes index score is lower compared to many high-income countries. For example, the index score for India is 10.5 out of 18, while countries like Germany and the United States score higher, reflecting better court structures, case management, and alternative dispute resolution mechanism.
- Hong Kong improved procedural efficiency by imposing limits on certain appeals, reducing the time for witness examination, and extending discovery procedures. These changes have helped speed up the resolution of contract disputes.
- Dubai created specialized courts to handle commercial disputes, which has significantly increased the resolution rate of contract enforcement actions.
- Mauritania and Moldova: Both countries implemented fast-track procedures for resolving small value disputes. This approach has made the process quicker and more efficient.
- Jamaica started publishing court performance reports to enhance transparency and accountability in the judicial process.
- Costa Rica introduced a pre-trial conference system to streamline case management and ensure timely resolution of disputes.
- Paraguay implemented an electronic case management system to improve the organization and flow of cases through the court system.
These reforms have helped these countries improve their contract enforcement mechanisms, making it easier and faster for businesses to resolve disputes.
Steps Taken by the Indian Government
The Indian government has undertaken several reforms to improve the enforcement of contracts:
- Commercial Courts: The establishment of commercial courts has been a significant step towards improving the efficiency of contract enforcement. These courts are specialized in handling commercial disputes, which helps in faster resolution.
- E-Courts Project: The government has implemented the e-Courts project to digitize court processes. This includes electronic filing of cases, online case tracking, and digital case management systems, which aim to reduce delays and improve transparency.
- Arbitration and Mediation: The government has promoted alternative dispute resolution mechanisms like arbitration and mediation to reduce the burden on courts and provide quicker resolutions.
- Judicial Reforms: Various judicial reforms have been introduced to improve the efficiency of the judicial system. This includes the appointment of more judges, training programs for judicial officers, and the introduction of fast-track courts for specific types of cases.
These steps are part of the government's broader efforts to create a more efficient, transparent, and robust contract enforcement regime, which is essential for improving India's Ease of Doing Business ranking.
Overall, while India has made progress in improving its contract enforcement mechanisms, there is still a significant gap compared to top-performing countries. Efforts to streamline judicial processes, reduce costs, and shorten the time required for dispute resolution can help improve India's ranking further.
