The interface between and law and economic policy in India is a fascinating exploration in the issues relating to constitutional doctrines of separation of powers and issues in development policy. The role played by the judiciary takes us into domains of policy and governance that are unique in the democratic world.
This story has a number of phases. The first phase began with independence and continued until the mid seventies. During this phase the court may be described as being conservative but essentially protective of the constitutional rights. It avoided confronting Parliament on issues of economic regulation and civil liberties, preferring to help establish the legitimacy of the Central government. However its inherent legal conservatism led it to conflicts with the executive and legislature on laws related to property. The right to property was originally included among the Fundamental Rights. It was this right that was seen by successive Congress governments as the most serious obstacle to socialism or social reform and the effort to break the power of traditional elites. The Forty Fourth Amendment to the Indian Constitution represents the culmination of this process. Apart from removing the ‘right to property’ as a fundamental right and locating it as a much weaker statutory or constitutional right, where it reads as ‘No person shall be deprived of his property save by authority of law’, this Amendment constitutionally precludes judicial questioning of any compensation regime put in place by the legislature.
The next phase was brief with the emergency, and the suppression of basic rights. The end of the emergency in 1977, sees the emergence of the court in a new interventionist light. This happened with the Supreme Court enlarging the reach of law and its jurisdiction in two ways. One, by re-interpreting the constitution to expand the scope and content of various fundamental rights, and two, by moderating the ancient requirement of locus standi (standing and interest) for access to judicial remedies and redress. As a consequence, where it was felt that there had been gross violation of fundamental rights, procedural requirements were eased to enable individuals or organisations to approach the Supreme Court and High Courts on the behalf of those unable to do so themselves – “in the public interest”. Typically these cases dealt with gross violation of rights – many of them involving women as victims, in locations such as prisons and remand homes. 
However it was the Bhopal Gas Tragedy that changed the character of this intervention. The legal response to Bhopal was poor, and the matter was settled leaving no opportunity to develop a jurisprudence on mass torts. However the incident both raised public concern as well as highlighted the failure of the existing legal regulatory framework for taking remedial steps. This then laid the ground for a number of public interest litigations (PIL) that were filed on various environmental matters. One of the most influential PILs in this category was the one on Delhi Air Pollution. 
In 1985, concerned with Delhi’s growing pollution problems MC Mehta filed a writ petition to direct the Delhi Government to implement the Air Act. This petition led to a series of inquiries by the court on how this problem was being handled. In the early stages of the litigation the impact was primarily to push the executive into formulating measures for pollution control. These measures were ineffective due to poor implementation. The poor progress pushed the court into pushing the administration into creating an authority (The Bhure Lal Committee) to monitor progress and implementation. This authority was further assisted by the court in that a number of its decisions (using the tool of continuing mandamus) were made into court orders so that violation/ non-implementation of the order opened the door for a charge of contempt of court. This method of intervention was not unique and in number of cases before the courts similar solutions were adopted (Forests, Right to Food, Delhi Master Plan and etc.) A second form of judicial intervention took place where the courts felt that the existing legal regime was not adequately protective of rights. Thus in the now famous Vishaka judgement  aggravated by the fact that civil and penal law in India does not protect women from sexual harassment in the work place, the Supreme Court specified a model law to prevent sexual harassment.
The benefits and achievements of this expanded role for the judiciary are undeniable, but then what are the costs?
Separation of Powers: An economic rationale
I have used the the concept of transaction costs to develop an economic rationale for describing the institutions comprising the State . The basic idea is that if no transaction costs are incurred towards establishing and maintaining the order that the State aspires towards, the institutional form of the State would not matter. The question then arises, what exactly are the types of transactions costs that different institutional mechanisms in the state seeking to mitigate?
The legislature in modern democracies is constituted through elected representatives which implies that the representatives encapsulate in their own preferences an aggregate measure of those who elect them enabling them to make decisions relating to provision of public goods and creation or abrogation of rights. These decisions require making distributional assumptions on the preferences of the affected population. Similarly judiciaries adjudicate competing claims of parties with private information and vested interests in their disclosure through adoption of rules of procedure and decision making which are efficient and perceived to be ex-ante fair under such situations of incomplete and asymmetric information. Finally the executive can be viewed as a hierarchical body that makes technical decisions in the face of incomplete information by creating systems of incentives and structure that allow the use of scientific, epidemiological and statistical knowledge and personalised idiosyncratic skills. The significant inference could be that since the legislature, the executive, and the judiciary process uniquely distinct categories of information, the separation of powers doctrine acts to minimise transaction costs. It follows from this that allocation problems themselves should be paired up with the appropriate institution to gain an efficient solution.
The formulation spelled out is schematic in nature – in practice there can be considerable overlap across different institutions of the kind of transaction cost they minimize. It must also be realised that transaction costs in themselves are not static, often changing with technological change. It is also essential not to misinterpret our formulation as saying that transaction costs can explain or justify the doctrine of separation of powers. To take such a stance, it would require us to show how the presence of transaction costs leads to the separation of powers. Instead we have used the notion of transactions costs, or more specifically the information costs of social decision-making, to deduce that problems confronting the State can be best solved by being placed in the appropriate niche carved out by the doctrine of separation of powers.
While these arguments are persuasive they do not account for the possibility of institutional failure. Economists are familiar with this concept, the concepts relating to external economies and diseconomies, public goods, indivisibilities etc have all been used to develop the ideas of market failure. The traditional text book treatment of this issue will then argue that there is a case for a non market institution to step in. In a similar vein we can argue that corruption, electoral infirmities and imperfect access to capital markets could similarly affect each one of the institutions of the state. Further the dynamic character of transactions costs implies that the boundaries of decision making of these different institutions themselves cannot be rigid.
The framers of the Indian constitution did not formulate a strict doctrine of separation of powers but envisaged a system of checks and balances. Thus vehicle of executive action through judicial support has sought to compensate for the fact that executive decision making was being subordinated to political expediency. This solution is fraught with its own risks of legitimacy and effectiveness. To illustrate the vehicle pollution case has focused on Delhi and a few major metros. However air pollution and other forms of pollution are issues of nation wide concern, and thus effective policy requires involvement of agents at much broader levels than are currently feasible in court procedures.
Discomfort with these solutions can be seen in a variety of court judgements  where the court has cautioned on the tendency of judiciaries to encroach on legislative and executive powers. Thus in the Aravali Golf Club case the court observed “Under our Constitution, the Legislature, Executive and Judiciary all have their own broad spheres of operation. Ordinarily it is not proper for any of these three organs of the State to encroach upon the domain of another, otherwise the delicate balance in the Constitution will be upset, and there will be a reaction”. But the balance cannot be merely by a return by the court to an earlier era of conservative interpretation, in Pareen Swarup  the court observed “It is necessary that the Court may draw a line which the executive may not cross in their misguided desire to take over bit by bit and judicial functions and powers of the State exercised by the duly constituted Courts. While creating new avenue of judicial forums, it is the duty of the Government to see that they are not in breach of basic constitutional scheme of separation of powers and independence of the judicial function.” Or in the matter relating the Madras High Court decision on the Madras Bar association case the Supreme Court pointed to the need for a constitution bench to examine the domain of legislative competence in creating new judicial forums. Thus appreciating the correct role for each constitutional institution is a challenge which we need to take up in order to develop a more sustainable model of governance. Similar words could be used for the activist Indian judiciary.
Anant, TCA and Jaivir Singh. (2002) ‘An Economic Analysis of Judicial Activism’ Economic and Political Weekly Vol. XXXVII No. 43 Oct 26 pp. 4433- 4439
Anant, TCA “Environment and Law” in The Oxford Companion to Economics in India General Editor: Kaushik Basu
Anant, TCA and Jaivir Singh “Structuring Regulation: The Constitutional and Legal Frame in India”
 Among many other cases see, for example, for under trail prisoners: Hussainara Khatoon v. Bihar 1979 SC 1360; prison inmates: Sunil Batra v. Delhi Administration AIR 1982 SC 1473; remand homes: Munna v. State of U.P AIR 1982 SC 806; women in protective custody: Dr. Upendra Baxi v. U.P (1983) 2 SCC 308.
 MC Mehta v Union of India WP (civil) 130295 of 1985
 Vishaka v. State of Rajasthan (1997) 6 SCC 241
 The size and composition of representative processes have changed over time. These changes have reflected both developments in technology as well as social thought. Thus we have moved from the small assemblies of adult men in ancient societies to the confused chatter of the World Wide Web. Our experiments with representation continue with our concerns for rights of the media and freedom of information.
 Common Cause vs Union of India (2008)5SCC511, Divisional Manager, Aravali Golf Club 2007(14)SCALE1
 (2008)13 SCALE 84