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Law, Finance, and Politics: The Case of India

Published online by Cambridge University Press:  01 January 2024

John Armour  and
Priya Lele
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Abstract

The liberalization of India's economy since 1991 has brought with it considerable development of its financial markets and supporting legal institutions. An influential body of economic scholarship asserts that a country's “legal origin”—as a civilian or common law jurisdiction—plays an important part in determining the development of its investor protection regulations, and consequently its financial development. An alternative theory claims that the determinants of investor protection are political, rather than legal. We use the case of India to test these theories. We find little support for the idea that India's legal heritage as a common law country has been influential in speeding the path of regulatory reforms and financial development. Rather, we suggest there are complementarities between (1) India's relative success in services and software; (2) the relative strength of its financial markets for outside equity, as opposed to outside debt; and (3) the relative success of stock market regulation, as opposed to reforms of creditor rights. We conclude that political economy explanations have more traction in explaining the case of India than do theories based on “legal origins.”

Type
Articles
Information
Law & Society Review , Volume 43 , Issue 3 , September 2009 , pp. 491 - 526
Copyright
© 2009 Law and Society Association.

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Footnotes

This research was funded by a grant from the ESRC's World Economy and Finance program. We are most grateful to our interviewees in India. We also owe particular thanks to Mr. P. B. Kulkarni and to Arun and Siddharth Bhatnagar for their assistance. This article has benefited from comments following presentations at the Bank of England, Birmingham University, Columbia Law School, CLEF, and the LSE. We thank Arun Thankom, Sumon Bhaumik, Bob Cooter, Simon Deakin, Panicos Demetriades, Joshua Getzler, Curtis Milhaupt, Richard Nolan, Katharina Pistor, Prabirjit Sarkar, Mitra Sharafi, Mathias Siems, and Ajit Singh for helpful comments and discussions. The views expressed in this article are those of the authors alone and should not be taken as reflecting the views of any individual interviewee(s) or their organization(s).

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