India Business Law Journal’s 2019 billing rates survey finds legal fees rising, but a difficult economy is putting pressure on law firms’ margins. Vandana Chatlani reports

India’s economy is in dangerous waters. In August, data from the National Statistical Office put India’s GDP growth rate at 5% in the first quarter of the 2020 financial year – the slowest rate of growth in the past six years. Consumer demand has fallen. Unemployment continues to pose challenges. Growth in eight key sectors of the economy including coal, steel, cement and natural gas production plummeted from 7.3% in July 2018 to 2.1% in the same month this year, according to the Ministry of Commerce and Industry.

Heavy monsoon rains and flooding have fuelled agricultural woes, delaying harvests and shrinking supplies. The price of onions doubled in recent months to around ₹80 (US$1.10) per kilogram, leading to an unexpected ban on exports in order to drive costs down locally.

While households hope for more affordable onions, corporate counsel, reeling from the economic slump, are bargaining for better legal fees.

“Clients are reluctant to spend on legal fees on account of the current economic situation in India,” says Apurv Sardeshmukh, a partner at Legasis Partners.

Other factors also have a role to play. “The pressure on fees continues on account of increased competition from more law firms, as well as from larger in-house teams,” says Vijay Sambamurthi, the founder and managing partner at Lexygen. “Some of this pressure is healthy, as it clips inefficiencies at law firms, but some of it is clearly not, as it forces even some of the larger firms to offer unrealistic discounts, which inevitably results in the dilution of quality.”

Tightening their belts

While escalating competition provides buyers with more choice and control over fees, it also forces law firms to squeeze their profit margins.

“There is definitely a pressure to retain fee rates at 2018 levels,” says Gautam Khurana, the managing partner at India Law Offices. “We have seen a tightening and more conservative approach from clients towards billing.”

The demand for alternative fee arrangements is stronger than ever before. Badri Narayan, a partner at Lakshmikumaran & Sridharan, points to a higher demand for fixed-fee arrangements from Indian clients, while Seema Jhingan, a partner and co-founder at LexCounsel, says law firms are adopting innovative methods to attract new clients and retain existing ones.

“We have been requested by multiple clients to provide creative approaches to billing, which involves a blend of hourly rates, fixed fees and alternative pricing structures such as volume pricing,” says Naveen Varma, a senior partner at ZeusIP.

Anju Khanna, the managing partner at Lall & Sethi, notes the proliferation of new law firms and independent practices that has driven rates down even further, “irrespective of the quality of services being provided”.

However, not all firms have moved towards alternative billing structures. Spice Route Legal has done the opposite. “We have transitioned from offering fixed-fee models to virtually offering only hourly rates,” says partner Mathew Chacko. “In addition to this, we have a subscription model for routine corporate and commercial assistance. By and large, we find that clients are willing to pay for quality work, partner attention and responsiveness.”

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