India Business Law Journal – September 2009

All aboard the India Express

‘The train to the Flat World is leaving the station … It is time to mind the gaps and get on board’

So says a recent report by IT and outsourcing giant Infosys, capturing the mindset of many executives worldwide.

Getting “on board” is clearly what the latest reshaping of India’s legal landscape is all about. With limited liability partnerships now possible, and the removal of barriers to foreign law firms looking ever more likely, the number of “marriages” between Indian and foreign firms has increased markedly in recent months. The trend is accelerating and seems likely to continue. But are such tie-ups really the best way forward for the country’s legal profession?

As illustrated in this month’s Cover Story opinions vary widely. While some observers are confident that matrimony is the way to a brighter future, others extol the virtues of the single life. The alliances have happened even without any money changing hands. So, it seems fairly obvious that the aim of the game is mutual benefit. While this is so, more such alliances can be expected.

Companies like Infosys have been instrumental in both the creation of a flat world and a changed India. But as is often the case, while India’s economy has surged ahead, large parts of the population have been left behind. Bijesh Thakker, managing partner of Thakker & Thakker in Mumbai, believes that lawyers should be at the forefront of efforts to fight poverty and improve access to education. Writing in this month’s Vantage point, he argues powerfully in favour of a more coordinated approach to pro bono work by the country’s legal professionals.

Another aspect of India’s rich tapestry that has sometimes failed to keep pace with economic development is the country’s legislative and regulatory architecture. The considerable challenge of correcting this imbalance rests with bodies like the Competition Commission of India (CCI), which recently began enforcing antitrust legislation dating back to the 2002 Competition Act and an amendment passed in 2007.

The first of this month’s Spotlight features throws light on the CCI’s early actions and considers how it is likely to impact India’s competitive environment. While its efforts to curb anti-competitive behaviour will be welcomed, its mandate could create worries for investors. As Jonas Koponen, a competition and antitrust expert at Linklaters, cautions, it is possible that, “a corporation that has been operating in India for a while could find that some of its activities are anti-competitive”.

Our second Spotlight feature focuses on outbound investment from India to the US. Such deals – over 140 acquisitions in the last two years alone – bear testament to India’s growing economic power. But as our coverage forcefully illustrates, to successfully buy into a US company takes more than financial clout alone.

For an in-depth analysis of the scrutiny applied on national security grounds to investments from India, we turned to the experts. Mark Plotkin, David Fagan and Adam Smith of Covington & Burling in Washington describe what it takes to win approval from the Committee on Foreign Investment in the US (CFIUS). Their observations, which include rare insights into how several key investments made it through the review process, warrant careful scrutiny.

As the world gets flatter and we revel in its many benefits, we are increasingly wary of anything that rattles its stability. So it is that while we struggle through the global financial crisis, interest in Islamic finance has burgeoned. Widely viewed as a more stable alternative to traditional methods of investing, funds and bonds based on Shariah law are gaining in popularity.

This month’s What’s the deal? examines the setting up of India’s first actively managed Islamic mutual fund. Given that India has the third largest Muslim population in the world, it is easy to assume that the new fund, managed by Mumbai-based Taurus Mutual Fund, would have had an easy ride. However, we find that Taurus faces an uphill struggle, with both the regulators and India’s Muslim community in need of some convincing before the fund can reach its full potential.

For now the fund has not caused many ripples in Indian legal circles, but the international Muslim legal community has been tracking its progress with care. Aida Othman, a partner at Kuala Lumpur-based Zaid Ibrahim & Co, points out that Islamic funds have taken off even in countries with tiny Muslim populations. “India would do well to step up its competitiveness as a potential industry player,” she says.

Another sector brimming with unfulfilled potential is India’s power and defence market. Recent bilateral agreements have removed many of the obstacles to foreign participation, but as our coverage finds (Power games), few investors have actually taken the plunge. Although well aware of the long-term opportunities, many have been deterred by tough regulatory requirements, political wrangling and strict caps on the level of foreign participation.

What is needed is “a clean set of foreign investment rules,” says Bahram Vakil, a partner at AZB & Partners. “In some ways, [the current situation] is good for a lawyer because it generates a lot of business, but from a foreign investor’s perspective, it is an unholy mess.”

Clearly there is much work to be done if India’s power and defence sectors are to fulfil their true potential. But as Baljit Singh Kalha, a partner at Titus & Co and head of the firm’s power practice, says: “If you are dedicated there are huge opportunities”.