India is ripe for liberalisation
26 February 2007
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It is often asserted that India has the potential to become one of the world's great legal centres in the 21st century, alongside London and New York. It has innate advantages in its common law traditions and English language capability. But until very recently India had not recognised the role that advisory legal services have to play in attracting foreign investment and developing a broader-based services economy.
This is beginning to change and 2007 may represent the turning point at which the world's largest democracy recognises that a more open legal market could be good, not only for Indian business and economy, but also for Indian lawyers.
There is good reason to believe that there is a new political willingness to grasp the nettle of reform of the Indian legal market.
There is much wider engagement in the debate about the possibility of the legal market opening. In July 2006 the Indian Ministry of Commerce and Industry issued a consultation document on the opening of the legal market in the context of the World Trade Organisation trade negotiations. Sources suggest that the ministry was pleasantly surprised at the reaction from many in the legal profession to the possibility of foreign lawyers entering the market, even if this fell short of an enthusiastic welcome.
A similar pragmatic reaction was also evident at the conference on trade in legal services held on 20 January in Delhi by the Associated Chambers of Commerce and Industry of India and the Society of Indian Law Firms. Most of the Indian participants were in favour of the market opening provided that domestic reforms were undertaken first in order to prepare local law firms for foreign competition.
The practical reforms that India needs to undertake if it is to maximise its potential as a legal market are also being edged forward. These include a bill, now in parliament, that would not only permit limited-liability partnerships, but would also lift the cap on the number of partners in law firms.
There are also signs of a growing debate on the role of advertising and publicity in the legal profession. Bar Council of India rules prohibit Indian advocates from publicising their services, but a current case at the Indian Supreme Court on advertising by lawyers may help to initiate a rethink. This would be a critical development, as advertising is seen by Indian law firms themselves as the single most important reform that could be undertaken to help them compete in international markets. There is also a new fluidity in the legal market and real evidence that the most ambitious Indian law firms are preparing for a more competitive and exciting marketplace. There are law firm mergers, such as the Fox Mandal-Arthur Little and Co merger of last year, while Indian firms are also hiring foreign lawyers in order to increase their ranges of client services.
All of this suggests that change is in the air in India, but says nothing about how reform might happen and to what timetable.
The congress government has a window of opportunity to introduce reforms in the next 12-18 months. If it does not, there is no guarantee that a favourable political and economic climate will continue, or that the political figures who are pushing reform will remain in their current roles. Such a window would also coincide with negotiations on an EU-India free trade agreement, which is likely to include discussion of legal services.
The 'how' is more difficult, but it must involve new legislation. The Bombay High Court judgment of 1995 set out an extremely conservative interpretation of India's Advocates Act, which is not helpful for Indian firms, which cannot build multinational partnerships or even effective legal outsourcing businesses on the current interpretation. The judgment has also increased the cost base of Indian companies, which cannot take legal advice from a non-Indian advocate in India.
But perhaps most significantly, it has been counterproductive for the Indian economy, which is failing to build on one of the core strategic advantages it has over most other major Asian economies - its common law heritage.