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Insights into the Indian Legal Market

India, the world’s second-largest country in terms of population, and the third fastest-growing emerging nation, occupies a significant position in the Asian economy. A demographic explosion in the post-war years (catapulting the country’s population to over 1.3 billion people), a burgeoning middle class and an ambitious government led by Narendra Modi have done much to promote India’s appeal to domestic and international corporations. The country’s legal market remains the preserve of domestic full-service firms, many of which operate on a traditional, family-run model. Protective legislation is also in place to bar entry to foreign law firms. The restricted legal market remains a divisive issue with government officials, clients and lawyers seeking to open up the market to foreign competition. In late 2016, Who’s Who Legal travelled to India to meet some of the country’s leading lawyers and discuss developments in the Indian market.

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Demonetisation, the Goods and Services Tax and Foreign Investment

Who’s Who Legal’s Indian research came days after the Indian government scrapped 86.9 per cent of the country’s currency overnight. Government intervention to reduce corruption and counterfeiting resulted in 500 and 1,000-rupee notes being pulled from circulation. The short-term effects on a cash-reliant country were remarkable. Millions were forced to stand in queues at banks for hours on end in an attempt to replace their old notes, citizens were unable to afford access to basic services and many small business owners were hit hard by the government’s unforeseen and far-reaching monetary overhaul, as a shortage of smaller denominations of the Indian rupee curtailed spending. While the wider economic effects of demonetisation, both positive and negative, are yet to be seen, it is clear that the Indian government’s intervention is symbolic of a comprehensive approach to modernise the country. An anticipated consequence is a movement away from a cash economy, not only allowing the government to increase its income from taxation, but also giving the wider Indian population access to financial services and credit.

A reform to indirect taxation in India is also symptomatic of a concerted effort to stimulate economic growth and modernise the Indian economy. Announced in 2016 and expected to come into force in July 2017, the government’s goods and services tax (GST) promises to replace several central and state taxes with a single tax, thereby simplifying the system of indirect taxation and increasing inter-state trade in the process. The move, widely praised by members of the country’s business community, is indicative of a desire to improve the country’s economic fortunes.

This aspiration is also reflected in the government’s hopes to increase direct foreign investment. The recent abolition of its Foreign Investment Promotion Board, often seen as a hindrance rather than a help by would-be investors, highlights a willingness to adjust policy to accomplish this goal. Indeed, many lawyers noted that 2016 was a slower year than expected for inbound investment and expected positive steps to be taken to improve these figures. That being said, the same interviewees highlighted that Modi’s encouraging attitude to domestic business and his commitment to increasing direct foreign investment “could only benefit corporate clients and their legal counsel”, increasing the amount of work coming in. Ultimately, the government’s reforms not only demonstrate a desire to modernise India by aligning the country more closely with well-established markets, but also highlight a pro-business approach that encourages domestic and international corporations with Indian business interests.

Legal Marketplace

The Indian legal market has been particularly volatile over the past few years. May 2015 saw a significant shift in the market as the country’s largest and most prestigious law firm, Amarchand & Mangaldas & Suresh A Shroff & Co (AMSS), was officially dissolved following a successful mediation between Suresh Shroff’s sons Shardul and Cyril, the managing partners of the firm’s New Delhi and Mumbai offices respectively. The schism resulting in the formation of two separate entities – Shardul Amarchand Mangaldas and Cyril Amarchand Mangaldas – was a formative moment, not only resulting in a new addition to the ranks of the so-called “Big Six” firms, but also ushering in an intensely competitive and volatile environment for law firms. As one respondent noted, the period of flux in the Indian market caused by AMSS’s split led to a serious “battle for talent” among the upper echelons of the market as “the cost for securing talent increased while the cost for legal services decreased”. Market volatility was not merely restricted to the AMSS offshoots, with considerable lateral movement across a number of the leading firms. That being said, lawyers did suggest that rationality and stability would soon return to the market.

Another notable trend affected the legal market in 2016: senior partners at leading firms leaving to take up an independent counsel practice. Trilegal co-founder Anand Prasad, Economic Laws Practice co-founder Rohan Shah and former capital markets practice head at J Sagar Associates Somasekhar Sundaresan are all examples of notable lawyers leaving leading firms to focus on litigation as independent practitioners, free from the potential conflicts that go hand in hand with a traditional law firm setting. Ultimately, it highlights a growing desire among top lawyers to focus their efforts on an appellate practice.

The Proposed Liberalisation of the Indian Legal Market

The liberalisation of the Indian legal market has been a bone of contention in the country for a number of years. January 2017 saw the ministry of commerce and industry issue a notification in the Gazette of India formally amending the wording of the Special Economic Rules governing the types of businesses that can be established in special economic zones (SEZs). The development – the latest in an ongoing saga between the Indian government on one side, and the Bar Council of India (BCI) and the Society of Indian Law Firms on the other – has been hailed as a potential step towards opening the Indian market to international law and accountancy firms. Although the revision does not revoke the 1961 Advocates Act barring international lawyers and firms from practising law in India, or subsequent rulings reaffirming this restriction in the Mumbai, Chennai and Supreme Courts, it does open the door for both Indian and international legal and accountancy service providers to set up shops in SEZs.

Although the Indian government’s plans face stiff opposition from some leading law firms and associations, certain interviewees we spoke to welcomed the liberalisation of the legal market. One practitioner, for example, highlighted that “increasing competition could only benefit Indian law firms and clients” resulting in a more sophisticated approach and better service. Another respondent welcomed liberalisation, but was less than optimistic on a timeline for the proposed opening up of the market: “Successive governments have been trying to revolutionise the legal market for over two decades, so I’m hesitant to place too much faith in this happening in the near future.” Indeed, the Modi government’s focus on the issue seems sporadic and packaged within a broader emphasis on increasing foreign investment in India. Ultimately, while the move may be symbolic of an institutional desire to liberalise the legal market, the reality may take a while to come to fruition. That being said, lawyers report that the situation is being closely monitored by clients, domestic firms and international players alike who will be eager to stay ahead of the situation to ensure that their strategies going forward can react and adapt to any possible changes in market conditions.

Conclusion

Who’s Who Legal’s research into the Indian market came at a formative period in the development of its legal sector. The country’s continuing development, personified by government reform and an impulse to attract foreign investment, is undoubtedly going to affect the legal market in years to come. Market volatility and a concerted effort to modernise on the part of the country’s leading law firms, coupled with a growing desire to liberalise the legal market to improve legal services and the sophistication of its practitioners are all symbolic of a wider appetite for alignment with international standards. Ultimately, it remains to be seen how and when the Indian market finally opens up to international law firms, but it will undoubtedly be monitored closely by international law firms and clients looking to tap into its economic potential.

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W11 1QQ, UK