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It is a widely believed assumption that crime and economics have a paradoxical relationship. However, the authors of this paper take a step back to show an imperative aspect often foreshadowed. The legal processes regarding criminal law such as the legislation and execution of the same depends upon the economic state of the Country. Moreover, the study of criminology which focuses on the moral compass of the offender does not consider the economic conditions that the offender was put under. The paper further iterates upon the aspects of punishments and fines for criminal offences. In its essence, the paperfocuses on how the different economic and statistical tools can be implemented in the formulation, execution and adjudication of Criminal Law. The essence of this paper is to establish a link between the two terms and prove that criminal law cannot exist without economics..


The term Economics is usually associated with the aspect of money and finances. Until recently, the basic assumption was that law and economics can only be linked in the study of tax, budgets, and revenues. Juxtaposed to the aforementioned assumption, a wide variety of laws can be analyzed using economics. An indispensable aspect of the law is criminal law. An article by Gary Becker[1]wrote in the year 1965 helped the masses understand the use of economics and its applicability in criminal law. This opened up new avenues in understanding the subject of economics. To understand the various contentions and arguments in this paper, it is essential to understand why criminal law is treated on a different pedestal than that of any other law. The main difference between the two is the aspect of punishments and penalties. Any civil law or tort rewards the aggrieved party with a monetary compensation by the party who has committed a wrongful act against him. Criminal law although, grants the aggrieved party the option to either be given a compensation by the criminal or to ensure that the criminal is punished as the law may be (Jail, death sentence etc.). The main reason criminal law and economics haven’t been associated with each other over the years is simply that the aspect of non-monetary punishment doesn’t include money, which is what economics primarily deals with. This paper endeavors to help the readers understand the applicability of economics in the formulation, regulation and adjudication of criminal law.


The primary questions that will be dealt with through the course of this paper are:-

  1. Whether Criminal law and Economics are related?
  2. To what extent can economics be applied in cases of formulating and adjudicating criminal law?


The research undertaken is purely doctrinal. The arguments made have been substantiated keeping in mind the legal concepts that are associated with crime and economics.


To understand the relationship between economics and criminal law, we must establish a few definitions. There have been a plethora of different definitions given by various economists. Although, the most accepted definition is by professor Paul Simon, he defined economics as “the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption, now and in the future among various people and groups of society”.[2]A simple reading of the aforementioned definition establishes a few vital points. Firstly, Economics is the study of Money and satisfaction. Secondly, economics analyses the growth of an individual as well as society. Thirdly, economics analyses the resources which attribute to the production and consumption of resources. In layman terms,Criminal law is essentially the law that governs criminal activities. In India, there are two main statutes that deal with criminal law, The Indian Penal Code and the Criminal Procedure Code. The Indian Penal Code (IPC) defines the different crimes and in accordance, the punishments that can be granted to the offenders and the relief to to the aggrieved party. The Criminal Procedure Code (Cr.PC) on the other hand lays down the procedure for the governance of criminal law.[3]


Keeping in mind the definitions stated earlier, we can establish the relation between the two terms. To a few, the statement “Criminal law and economics are related” seems paradoxical due to the fact that the essence of economics is money. Criminal law, however, does not fully revolve around money but rather incorporates morals, ethics, and natural justice in the formulation, regulation, and Adjudication of criminal law. However, money acts as a backbone to the applicability of the criminal law. The primary aspect of criminal law substantially depends on the crime itself. A deteriorating economy could consequentially lead to an increase in criminal activity. This is elaborated under the heading ‘Economics and Criminology’. Yet there are a certain set of crimes that majorly affect the economy and these crimes are white-collar crimes. White-collar crimes are defined as crimes that encompass a variety of non-violent crimes that are followed by commercial situations that yield a financial gain. In its essence, white collar crimes deal with unaccounted money, which in its purest form falls within the periphery of economics. The perpetrators of this offence usually hold very respectable positions in society and are major contributors to the economy. All this until they begin indulging into illegal activities that eventually deteriorate the economy as well as their status in society. White-collar crimes include fraud, bribery, Ponzi Schemes, money laundering and basically any offence related to the illegal financial gain of the person committing it. In recent cases, India has seen an outburst of white-collar crimes which has resulted to a loss of Rs. 40, 000 crores. A totally of 31 fugitives including Vijay Malaya for Kingfisher, NiravModi part of Punjab National Bank, and LalitModi for the Indian Premier League scam are the major contributors to the amount. This in turn has led to the deterioration of the economy. Hence white-collar crimes like this can affect the economy of a country massively. The following sections of this paper will further elaborate on the relation between the same.

  1. Economics and criminology

Before discussing the role of economics in criminal law, we must understand the applicability of economics in criminology and crime itself. It is an established fact that when a person is not financially stable, he is far more likely to resort to illegal methods to acquire his finances as compared to a person who is financially stable. The same observation can be made when looking at the larger picture when an economy is in a state of depression or recession; the crime rates are higher when compared to an economically stable state. An example of this can be the Murder rates in India in the year 1991 when the Indian economy had undergone massive changes and had resulted in a state of recession. The same can be said for the year 2008.[4]Another instance of an increase in criminal rates due to economic conditions is the current situation in Venezuela. The country has the highest inflation rate in the world going over a million percent, to put that in perspective, India’s inflation rate is 6.2%. This makes the accessibility to food and shelter almost impossible. The consumer price index was over 2100 and the GDP has fallen over 35% over the course of a few years. This is a sharper drop that the one seen in the great depression of the United States. Moreover, the criminal rates especially in terms of murder has shot up and surpassed some of the most dangerous cities in the world at 91 murders per 100000 people. When the people of an economy do not have a stable means acquiring their necessities legally, they have no choice but to resort to illegal means to escape the state of financial desertion. The appropriate way to minimize the social costs of crime is to attack these root causes of crime—for example, to devote resources to job creation, income maintenance, family counselling, mental health, and drug and alcohol counselling.Economics also plays an important role in criminology, unlike any other study associated with criminology, economics uses statistical tools to predict and understand criminal tendencies. The economic approach in criminology considers criminal activities to be the outcomes of the choices available to the people rather than connecting it with the person’s character and his moral compass. These choices are made by the people based on the opportunities that they have as well as the possible outcomes if they are caught for their act. In other words, the tendency to commit a crime and the resulting punishments are inversely related. Thus, people tend to commit more crimes where laws are not rigid and the fines are really low. The economic approach also says that people will become more conscious of the consequences of a crime if they have too much to lose from the arising consequences.[5]However, it has to be kept in mind that this analysis did not include the social standpoint of the people but does that does not mean that the trends of the society must be neglected while analyzing the relationship between economics and crime. This is because the study of economics is based off the study of the society and its relationship with money.

Another key factor is urbanization, which contributes to the influx of non-violent crimes. Now non-violent crimes as the name suggests isn’t very heinous in nature and includes acts such as embezzlement, tax crimes, drug and alcohol related crimes and so on. A general pattern seen over the years are higher in cities than in rural parts of the country.While this fact suggests that urbanization contributes to crime, changes in urbanization do not align with changes in crime rates; so, the former cannot explain the latter. Subsequently there is a close relation between crimes and people who have come from dysfunctional families, relatives who are criminals, people with low intelligence quotient, do poorly at school, drug and alcohol abusers, people who live in poor and chaotic neighbourhoods and kids that start misbehaving at a young age.[6]

In India, there has been a sudden sprout for crimes being committed by adolescents and juveniles. This was recently brought into the limelight when the Juvenile Justice (Care and Protection of Children) Act, 2015 came into force. The passage of such act itself indicates that the crime rate by juveniles has increased and hence protection and standardization had to be done for such persons. Yet the National Crime figures still stand that in 2016 juveniles’ murdered 892 people.  In the same year, 1,903 offenders aged under 18 were charged with rape. Official statistics record a 6.7 percent increase in juvenile crimes in 2016 on the previous year.In 2016, India recorded 44,174 chargeable juvenile offenses that included rape, rioting, robbery, murder and assault.[7] Surprisingly after juveniles, even foetuses have an indirect role to play. This is the link between abortion and a crime. The rational for the medical termination of pregnancy is that women who have abortions are not in a position to take care of their babies. Such women include teenage women, unmarried women and sometimes even the economically backward. Thus, without waiting for a more economic or comfortable position, giving birth would risk the child to engage in criminal activities. Keeping the aforementioned points in mind, it can be safely concluded that the study of economics and criminology are related.

  1. The formulation and adjudication of punishments by fine using economics

It is a widely accepted fact that economics plays a large role in the formulation of criminal law and the various policies that accompany it. The tools that are used by economists to study demand and supply can be used to study crime. For example, the crime rates of a state can help the legislators to decide on the strictness of the law being made. Economics can be used to ascertain the ultimatum of the law. Any law made to deter crime has the agenda to reduce/ abolish that crime. Economics can be used to analyze the extent at which this agenda can be achieved keeping in mind the various factors such as the economic stability of the state and the physical quality of life of the citizens of the state. Since economics is a blend of both normative and positive approaches of estimating the nature of an issue, criminal law and crime prevention programs can be evaluated using the same apparatus that is routinely applied to education, healthand environmental regulation.

While formulating any law, it is vital to understand the economic climate of the State. Any crime that has been committed against the state or against an individual grants the aggrieved party to pray for relief in monetary terms or the punishment of the criminal with the discretion of the court. The Indian Penal Code, 1860, is the statute that defines the different offences as well as prescribes the punishments and fines for any criminal offence according to the Indian law. For this paper however, we will mostly be focusing on the aspect of fines in this particular discussion. To substantiate this discussion, an example would be necessary. Section 177 of the Indian Penal Code[8]  elaborates on the offence of furnishing of false information. For example, a landowner who had committed a murder in his land informs the magistrate that the death was caused by a bite of a snake, would be charged under this Section. Under this section, the offender would have to pay a fine of rupees 1000. It must be kept in mind that this section defines a criminal offence where damages in most situations cannot be calculated in monetary terms. This is where economics comes into play. Various economic and statistical tools were taken into consideration while coming up with the fine for this section. The four main factors that legislators keep in mind while allocating a concrete fine are:

  1. Whether the fine would act as a viable deterrent for the crime and eventually lead to the reduction of the crime itself.
  2. Whether the fine is in accordance with the principles of Justice, Equity and Good Conscience.
  • Whether the fine is acceptable keeping in mind the current state of the economy.
  1. Whether the fine is acceptable keeping in mind the socio-cultural norms of the land

Along with the aforementioned factors, it is critical to understand that factors such as inflation rates and growth rates play a massive role in the allocation of these fines. These fines must be constantly revised keeping in mind the economic standpoint of the state. For example, the sum of rupees 1000 as a fine under section 177 of the Indian Penal Code would have been considered as too much in the year 1960 and would possibly be considered too less in the year 2030 keeping in mind the inflation rate of India.[9]

It is vital to understand that this logic also applies to the Judiciary and its discretionary powers, in any case where the aggrieved party prays to receive damages as a means of ensuring justice, the judges have to keep in mind the following three points:

  1. Whether the damages would fairly benefit the aggrieved party keeping in mind his economic standpoint.
  2. Whether the damages would fairly punish the offender and whether he is in a position to pay the amount in damages.
  • Whether the amount awarded follows the principles of justice, equity and good conscience.

At this point it is pertinent to know that the opportunity cost of crimes to the society is very high. The reason is primarily due to the fact that criminals, if they did not commit such a crime would contribute directly to the economy. Secondly, the value of goods or property stolen would also have an alarming influence on the economy.Another aspect that should be considered is the opportunity cost that can benefit the economy once there criminals are in jail. While doing jail time, criminals can work on chores that will help contribute to society such as carpentry, making road signals and so on. Hence, we can safely conclude that economics plays a large role in the formulation of the fines and monetary penalties mentioned under the Indian Penal Code as well as the system of monetary damages by the discretion of the courts.

  1. Formulation and execution of punishments by imprisonment

In the previous section, the formulation of fines and penalties under the Indian Penal Code were elaborated upon. In this Section, we will look at the economic factors that affect the formulation of punishments by imprisonment under the Indian Penal Code. The main factor which has to be touched upon in this discussion is budgeting. It is impossible for a person to live a life with the bare necessities without incurring any expenses. The Indian Penal Code provides for two kinds of offenses, bailable offenses (offences that can be punished monetarily) and non-bailable offenses (offences that can only be punished by imprisonment). For the sake of convenience, we shall take a non-bailable offense to substantiate this discussion. Section 232 of the Indian Penal Code[10] punishes anyone who counterfeits an Indian coin by an imprisonment for a period of 10 years to life. Section 274 of the Indian Penal Code[11] punishes anyone who adulterates any drug or medical preparation for the period of 6 months with a fine. A bare reading of the aforementioned provisions shows that there is a huge rift between the punishment sentence under Section 232 and 272 of the Indian Penal Code. This is simply because the state would rather keep someone who had defaced the Indian coin off the public for a longer time rather than someone who had adulterated any medical preparation. It would all boil down to the intensity of the crime committed but it’s much larger than that. Budgeting plays a very important role in the formulation of laws which include prison sentences. These provisions essentially require the state to allocate a part of its revenue to taking care of these prisoners and it isn’t cheap. Statistics show that the average cost of taking care of a prisoner is Rupees 28,538 per year.[12] Hence the prison sentence of an offender must be carefully formulated. There are three main questions that have to be answered while formulating the prison sentences for an offense, namely:

  1. Whether the act is applicable to a jail tenure and its necessity
  2. How long the tenure should be
  • Whether it follows the principles of Justice, Equity and Good Conscience.[13]

Expenditures by individuals and private organizations to prevent crime are more difficult to estimate than government expenditures. This money is spent on private guards, alarms, security systems, security cameras, placing identifying marks on valuable goods, and so on.Hence we can safely conclude that economics plays a large role in the formulation of laws that includes imprisonment.

  1. Legalizing an illegal market and its impact on economics

Within the jurisdiction of any government is the power to amend or repeal a previously made legislation. Usually any legislation dealing with taxation matters or economics in general have a massive impact on the economic environment of that territory. Similar to legislations on taxation, legalizing an illegal market, especially one with criminal consequences also affects the economy largely. In any scenario, when a product has a sufficient demand, supply will find its way despite a law restricting the same. These illegal products are usually bought and sold on a forum less traceable and illegal called the black market. In general, the more the government tries to dominate and control the economy, the larger the percentage of economic activity that takes place through the black market can be expected to be. However, when these markets are legalized it often results to a boom in the economy.

In the 1920’s when alcohol was banned in the United States of America, the economy had taken a massive dip hampering the employment and inflation rates. The legislators at the time had not evaluated the implication on the economy to be of such a detrimental effect but had assumed that the prohibition of alcohol would be beneficial to the economy. Despite the restriction on the sale of alcohol, producers from different countries had illegally exported alcoholic drinks into the United States. However, when the prohibition was lifted, the economy had grown to massive lengths and improved several underlying factors such as the employment rates and the revenue of the State. This is simply due to the fact that when restrictions are removed from a certain sector of the economy that operates beyond the allowed ambit, the legalization of the same opens a forum for the State to access it. In other words the economy expands and whenever an economy widens, the economic climate improves.


At this point of the discussion, it is essential to understand that criminal law and economics cannot co-exist without each other. It is inevitable that criminal acts are a source of enormous social costs that cannot be ignored by any society. The modern criminal law is a product of painstaking evolution that has been powerfully influenced by economics.  Many aspects of the legislation, execution and adjudication of criminal law would not exist without economics. Through the course of this paper, it was seen that several economic and statistical tools are used in criminal law. The various relations were brought out as to how this would affect the criminal law of the Indian Scenario. The relation is imperative to current winds of change such as cybercrime and block chains, as the new upcoming laws should encapsulate the affect it has on society and thus to the economy of the country on the whole.



Table of Books

  1. K.D. Gaur, Indian Penal Code, (Universal Law, 6thEdn., 2017).

Table of Journals

  1. Becker, G., Crime and Punishment: An Economic Approach. Journal of Political Economy, (1968).
  2. Johnston, J., Cooter, R., Ulen, T., Goldberg, V., Landes, W., Posner, R., Shavell, S. and Williamson, O., Law, Economics, and Post-Realist Explanation. Law & Society Review, (1990).
  3. McAdams, R. and Ulen, T. (2008). Behavioral Criminal Law and Economics.
  4. Galanter, M. and Setalvad, M., The Common Law in India. The American Journal of Comparative Law, (1961).
  5. James Q. Wilson, What to Do About Crime?, COMMENTARY (September, 1994).

Table of Websites

  1. Newslaundry, How much is spent on a prisoner in India?
  2. Palelil J, Economics Of Crime And Punishment.
  • Thakur A, Murder Count in India Falls to Its Lowest Level since 1960s – Times of India.
  1. Paul Simon, Budget & Economy.

Table of Legislations

  1. The Indian Penal Code, 1860
  2. The Code of Criminal Procedure, 1973

[1]Becker, G., Crime and Punishment: An Economic Approach. Journal of Political Economy, pp.169-217, (1968).

[2] Paul Simon, Budget & Economy,(Jul 2, 1996) _Economy.htm

[3]Johnston, J., Cooter, R., Ulen, T., Goldberg, V., Landes, W., Posner, R., Shavell, S. and Williamson, O., Law, Economics, and Post-Realist Explanation. Law & Society Review, p.1217, (1990).

[4] Thakur A, Murder Count in India Falls to Its Lowest Level since 1960s – Times of India, (Aug 22, 2015, 04:13 AM),

[5]Palelil J, Economics Of Crime And Punishment, (Sep 25, 2017),

[6]James Q. Wilson, What to Do AboutCrime?, COMMENTARY (September, 1994).

[7]National Crime Records Bureau, Crime in India 2016 Statistics, Ministry of Home Affairs, (2016).

[8]Section 177. Furnishing false information.—Whoever, being legally bound to furnish information on any subject to any public servant, as such, furnishes, as true, information on the subject which he knows or has reason to believe to be false, shall be punished with simple imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both; or, if the information which he is legally bound to give respects the commission of an offence, or is required for the purpose of preventing the commission of an offence, or in order to the apprehension of an offender, with imprisonment of either descrip­tion for a term which may extend to two years, or with fine, or with both.

[9]McAdams, R. and Ulen, T. (2008). Behavioral Criminal Law and Economics.

[10]Section 232. Counterfeiting Indian coin.—Whoever counterfeits, or know­ingly performs any part of the process of counterfeiting 1[Indian coin], shall be punished with 2[imprisonment for life], or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.

[11]Section 274. Adulteration of drugs.—Whoever adulterates any drug or medical preparation in such a manner as to lessen the efficacy or change the operation of such drug or medical preparation, or to make it noxious, intending that it shall be sold or used for, or knowing it to be likely that it will be sold or used for, any medicinal purpose, as if it had not undergone such adulteration, shall be punished with imprisonment of either description for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

[12]Newslaundry, How much is spent on a prisoner in India?,  (Jun 22, 2016),

[13]Galanter, M. and Setalvad, M., The Common Law in India. The American Journal of Comparative Law, p.292. (1961).

Cite as: Tarun K.S and Vishnu Sudarshan P., Economics and Criminal Law in India, 1 Int’l J. of Legal Sci. and Inno. 2 (2019)