Environment Policy

Justice or Economy? A Cost Benefit Analysis of the CUTS Report on Economic Impact of Judicial Decisions

In this article, the author critiques the CUTS report on Economic Impact of Judicial Decisions through a cost-benefit analysis. The author argues that the report has a flawed methodology, its recommendations do not pass muster on weighing the costs and benefits and the separation of powers doctrine is being violated. The core contention of the author is that the report favours ease of doing business over adherence to environmental regulations and its recommendations are myopic when a balancing of costs and benefits is done.

Kanishk Srinivas


The CUTS Society, in a report funded by and submitted to the NITI Aayog, analysed the decisions of the National Green Tribunal (hereinafter “NGT”) and the Supreme Court (SC) that stalled or imposed injunctions on major infrastructure projects and production activities. The report titled ‘Economic Impact of Select Decisions of the Supreme Court and National Green Tribunal of India’ examines the economic consequences of six judgements – ban on iron ore mining in Goa, staling of construction of the Mopa Airport in Goa, refusal to reopen the Sterlite Copper Plant in Tamil Nadu, ban on sand mining in the NCR region and ban on construction in the NCR region to mitigate pollution. The report recommends that judges be sensitised about the economic consequences of their judgements that delay or set aside major infrastructure projects. It argues that judges must realise the impact of their decisions on the public exchequer and economic development. Given the position of the NITI Aayog as the think tank of the Government, the report and its recommendations assume great importance for the balancing of economic development and environmental protection.

In this article, the author attempts to show that the argument is specious on three grounds. First, it critiques the report’s methodology which has several gaping holes in its data collection and opinion-seeking processes. Second, it argues that the recommendations of the report would fall flat upon undertaking a thorough cost-benefit analysis.  Third, some concerns relating to environmental protection and separation of powers have been highlighted.

Economic Impact of Judicial Decisions

I.  A Flawed Methodology

An ideal research report (Sotirios Sarantakos, pp.291-309) takes into account the perspectives of all concerned stakeholders, attempts to understand their concerns and motivations and proposes a solution that safeguards all legitimate and reasonable interests. This is precisely where the CUTS Report fails.

The report can be critiqued on three broad grounds. First, it does not incorporate the views and concerns of the “grassroots” level – the people who are directly affected by the implementation of these projects – lay people, village administrators, environmentalists and activists. It only takes into account the predilections of the affluent industrial classes who are better organised and more accessible through “Key Informant Interviews” and “Focus Discussion Groups” (CUTS Report,  p.13). The justification given by the report for not collecting the views and opinions of the grassroots level was the COVID-19 pandemic and the disinterest of these informants after learning about the objectives of the report (CUTS Report, p.13). Both these grounds are deeply problematic. When a report that has far-reaching policy consequences (like shaping the balance between economic development and environmental protection) and also attempts to influence the considerations that judges have while deciding cases, gathers the views of all concerned stakeholders, it is expected that a thorough investigation would have been conducted. The pandemic should not be used as an excuse to justify the lack of comprehensive research in the report. The authors of the report could have waited for the pandemic to subside to gather relevant opinions. This would have ensured that their recommendations were reflective of the consensus in society or at least served as a middle ground between competing interests. The feeling among weaker stakeholders that their interests might not be adequately protected in a report that has a pre-defined objective and their subsequent refusal to submit concerns to the authors is also worrying. This leads to the conclusion that the report was guided by some extraneous considerations and might not have been entirely impartial in dealing with the opinions presented to it.

Second, the report sees the benefits of infrastructure projects only from the perspective of the capital expenditure multiplier (CUTS Report, pp.14-15). It fails to take into account social benefits like better infrastructure, employment, and supplementary development accruing from such projects. It also fails to undertake an analysis of who benefits and loses the most as a result of these projects. As opposed to a purely economic analysis that only looks at monetary value, this approach will ensure that parties most interested in the commissioning of these projects and those who are most severely impacted by it can be consulted and their concerns assuaged.

Third, the report does not make references to environmental impact, health concerns and concepts like sustainable development. It simply focuses on the economic impact of stalling the projects. It recognises that all the projects referred to have been put on hold by the judiciary for flouting environmental regulations (CUTS Report, p.16, 19, 20, 23, 26) or being against public sentiment (CUTS Report, p.19) but continues to focus on the economic loss arising out of the judgement. It fails to accord sufficient importance to environmental protection, health concerns and public opinion aspects of these judgements.

II. A Cost-Benefit Analysis

Given the limitations of the report mentioned in the section above, an alternate framework needs to be conceptualised to analyse the economic impact of judicial decisions. While the CUTS Report recommends that judges undertake a cost-benefit analysis while passing judgements on major infrastructure projects, the inordinate focus continues to be on the economic impact of the judgements. The report only makes passing references to the environment and other stakeholders in its recommendations.

This has led the author to propose a cost-benefit analysis (Gerald Miller & Dinijo Robbins, p.465) (“CBA”) using the Pareto and Kaldor criteria (Miller & Robbins, pp.468-470). These criteria are more comprehensive and well-rounded in that they take into account the multiple costs and benefits associated with the projects in the long and short run while attempting to balance the same. They consider the economic consequences of these judgements but do not make them the sole metric for assessing the projects and their consequences. This balancing of interests makes them well suited as a tool for analysing the judgements and projects at hand.

The biggest challenge in any cost-benefit analysis is to quantify the intangible and indirect costs and benefits (Miller & Robbins, p.471). In the case of infrastructure and industrial projects, intangible costs (Nazeer Munazah, Uzma Tabassum & Shaista Alam, pp.589-604) take the form of public health concerns, environmental damage, resettlement trauma etc. while the intangible benefits include better living standards, greater employment options, ancillary development etc.

Pareto Criteria

Under the Pareto criteria, it is examined whether the implementation of a project which improves the condition of one person does not leave another person in a worse condition. A project is considered beneficial by these criteria as long as it leads to an increase in welfare of one person or group without harming another person or group (Miller & Robbins, pp.468-469). A law and economics approach focusing solely on economic efficiency (Martha T McCluskey, Frank Pasquale & Jennifer Taub, pp.297-308) like the CUTS report will conclude that since the project leads to a greater capital expenditure multiplier and maximises wealth, it is beneficial. However, when intangible costs and questions of equity are taken into account, the conclusion changes dramatically. Given the positive correlation between development and pollution in developing countries, the impact of environmental degradation on human development and “long-term economic development” and the unfair burden on marginalised sections of society (McCluskey, Pasquale & Taub, p.301), the costs outweigh the benefits of such projects. These projects undoubtedly enhance the well-being of some sections of society but not without disadvantaging other weaker groups and depriving them of their rights. An illustration can be seen from the NCR construction ban case. While the construction led to economic benefit for the construction companies and prospective owners, the undue burden of pollution was borne by the common residents of the NCR region. The pollution had assumed such horrifying proportions that schools and offices had to be shut and lungs of infants born in Delhi were compared to those of chain smokers. Thus, the projects can be seen as failing the Pareto criteria and imposing more costs than benefits.

Kaldor Criteria

The Kaldor criteria goes one step further than the Pareto criteria (Miller & Robbins, pp.469-470). It acknowledges the possibility of some groups benefitting at the cost of others but enquires whether the benefitting group can make good the losses of the other groups. If the answer is affirmative, the project can be implemented. Like projects that the report considers, the costs of resettlement, and alternate employment can be provided, but certain aspects like poor health, diminished living standards, and deteriorated environment cannot be compensated.

An illustration can be seen from the Sterlite Copper factory case. The CUTS report emphasises the importance of the Sterlite plant in India’s copper production and the loss to the exchequer as a result of the refusal to reopen the plant. However, the report does not take into account the environmental degradation and health hazards caused by the plant. Such harms cannot be offset by the proceeds of copper production, and it is precisely for this reason that the people of Tamil Nadu protested against this industry despite it being a major source of employment. 

The economic consequences of environmental degradation may, by itself, outweigh the benefits of the infrastructure projects, with the World Bank estimating the costs of this degradation at 3-10 percent of developing countries’ economies and approximately Rs.450 billion (Munazah, Tabassum & Alam, p.590). Thus, the projects would not satisfy a CBA under the Kaldor criteria either.

III. Other Concerns

In addition to its failure under CBA, the CUTS report has two broad concerns.

First, it fails to take into account the primary reason why the Courts stalled or cancelled the six projects mentioned in the report. The main reason in all the cases was non-compliance with environmental laws and public opposition. The report seems to suggest that even when these pressing reasons exist, judges must continue to examine economic consequences and losses to the public exchequer. While economic losses are an important consideration, they do not take precedence over environmental regulations and public interest. Environmental laws are the middle ground between banning all industrial activity to protect the environment and allowing indiscriminate destruction of natural resources for monetary gain. When any industrial project is not in compliance with these laws, consideration of economic consequences becomes irrelevant. Any losses arising as a result of non-compliance with environmental regulations cannot be pinned on the judiciary. The report itself recognises that more effective mechanisms of applying for leases (CUTS Report, p.25), granting environmental clearances (CUTS Report, p.23), and public disclosure of all documents (CUTS Report, p.19) could have avoided litigation. In short, the shortcomings of the executive procedures cannot be transferred to the judiciary. In addition, public interest plays a crucial role in determining the feasibility of a project. Like in the Sterlite copper case, if there is substantial opposition to the industry because of the health hazards it poses, the judiciary should give precedence to those concerns over a vague idea of economic benefit that most often accrues to private entities.

Second, while the report explicitly mentions that it does not attempt to “interfere with the decision-making process of the judiciary” (CUTS Report, p.12), a suggestion by an executive body like the NITI Aayog to the judiciary about taking into account economic consequences while passing judgements amounts to a violation of the Separation of Powers doctrine. The judiciary is the branch that determines the relevant considerations in any case, and an attempt by the NITI Aayog – the primary think tank of the Government – to influence these considerations through a report funded by it (CUTS Report, p.1) is worrying. The report can be seen as attempting to goad judges into foregrounding the economic consequences while adjudicating cases related to infrastructure and industrial projects. A recommendation of a report funded by the think tank of the Union government that it is dissatisfied with the decisions of judges and an attempt to reconfigure their priorities while deciding cases falls squarely within infringement of the separation of powers. In all the judgements considered by the report, the projects were stopped for violating environment laws. To criticise these judgements and recommend that the “number of judges and their competencies in the lower judiciary” (CUTS Report, p.29) must be increased is a frontal attack on the institution’s credibility. The report also recommends that there is “need for a holistic and balanced decision and approach” and that “the decision making of the SC should be guided by the larger public good” (CUTS Report, p.29). These seem to suggest that currently, the decisions of the SC neither take into account the “larger public good” nor are based on “holistic and balanced reasoning”.

This is not an isolated instance either. The proposal for the creation of a Judicial Performance Index that will track the judgements of the lower judiciary and bring about “efficiency” symbolises another attempt by the executive to influence judicial decisions through the recommendations of the NITI Aayog. It incentivises judges to pander to the Executive’s conception of “efficiency”, depriving the judiciary of its independence. While the Index does not purport to control the decision-making process, it rewards the judges (by giving them a higher ranking/rating) who adhere to its notions of efficiency, leaving the judiciary with a Hobsons choice. This establishes the point that the recommendations of the NITI Aayog have been used to systematically infringe the Separation of Powers and mould the judiciary to the policy preferences of the Executive.


While the suggestions of the CUTS report are commendable, a single-minded focus on the economic impact to the exclusion of environmental protection and public opinion may not be ideal. The report, insofar as it gives precedence to economic consequences over environmental regulations and public interest does not satisfy the CBA under the Pareto or the Kaldor criteria. Hence, any attempt to regulate the implementation of industrial projects must take into account a wide variety of factors ranging from economic impact and development to environmental protection and public sentiment. 

The attempt by the NITI Aayog to mould the criteria that the judiciary take into account while passing judgements is also violative of the Separation of Powers doctrine insofar as it considers the current decisions to not be in line with “larger public good” and lacking “holistic and balanced reasoning”. The report and its recommendations are to be seen as part of a broader pattern of infringement of the powers of the judiciary.

In short, the CUTS Report, being flawed in methodology and problematic in recommendations deserves a rethink before being put into practice.

The author is a student at the National Law School of India University, Bengaluru.

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