The economic doldrums of the developed world have served to highlight India’s strengths and attractions as both a recipient and an exporter of capital
To make the most of the opportunities, the crucial components of the country’s “soft” infrastructure need to be – and be seen to be – heading in the right direction. Foremost among these is the architecture of business law. But as this issue of India Business Law Journal demonstrates clearly, on this yardstick the jury remains most definitely out. Many promising trends are emerging, from the potential for effective dispute resolution to better training of legal professionals. At the same time, the limitations of the current framework are ever more visible, and the threat of worrying developments looms.
This month’s Cover story (Setting up shop) is illustrative. Unable to appear to be prejudicing the interests of India’s ubiquitous “mom-and-pop” retail outlets, lawmakers have concocted a weird but perhaps not wonderful hybrid range of investment options for foreign retailers. A pertinent example is the joint venture between Bharti and Wal-Mart, a deal that in some observers’ eyes pushes the legal envelope to the limit. Or, in the eyes of others, beyond it.
India Business Law Journal
The Bharti Wal-Mart venture displays the legal strategies that many multinationals will coin, assisted by their vast resources, with the goal of capturing a share of India’s burgeoning consumer market. Indeed, introducing international technology and management expertise, as foreign retailers promise, may spur the greater economic efficiencies that can form one antidote to the spectres of inflation and rising costs haunting India.
But the acid test of whether a jurisdiction is helping or hindering economic development lies not in the headline mega deals but in the more mundane successes of myriad small and medium-sized enterprises. Can transactions, whether incoming, outgoing or purely domestic, and more or less irrespective of economic sector, proceed predictably, smoothly and in an expeditious manner through the regulatory and approval structures? Furthermore, if and when disputes erupt, can they be resolved in a reasonable and timely fashion with judgments that can be enforced?
This month’s Intelligence report (The changing face of M&A) reveals how the mergers and acquisitions landscape in India is shifting. The highly liquid financial institutions of yesteryear have, not surprisingly, left the table to be replaced by cash-rich corporations pursuing industrial expansion rather than speculative gains. Increasingly, returns on investment in India are attracting worldwide capital while the economic slowdown in industrialized economies has brought asset prices there down to levels more attractive to Indian companies with ambitions of a global footprint. We have all witnessed the results.
But as our investigation discovers, a regulatory maze awaits would-be dealmakers. Bureaucratic turfs overlap, sector-specific agencies often contradict their federal counterparts and usage of many internationally established capital markets vehicles remains restricted. Pervasive regulatory ambiguity pushes up businesses’ compliance costs.
Of equal or greater concern to many foreign investors will be the fate of India’s double taxation avoidance agreements (Paradise lost). Business-friendly inward investment options face possible elimination if the government pushes ahead with the renegotiation of India’s tax treaties with Cyprus and Mauritius. However, perhaps the most telling aspect of the story is the all-pervasive uncertainty about if, when or how these changes may be introduced.
On a more promising note, this month’s case study holds out the alluring prospect of international arbitral awards (in this case the settlement of the breach of contract dispute between IMAX and E-City Entertainment) offering a viable alternative to domestic litigation (Arbitration hits the big screen). A London-based panel of the International Court of Arbitration has decided in IMAX’s favour and awarded the Canadian company damages of US$9.4 million. Now all eyes are on India to see whether the award will be enforced.
In the past, foreign arbitral awards have proved difficult to enforce in India and the status of arbitration has suffered as a result. This is perhaps indicative of the relative isolation of the country’s legal profession: While Indian corporations have embraced globalization – and in many cases profited handsomely from it – India’s law firms have, by and large, failed to follow suit. Writing for this month’s Vantage point, Stuart Popham, the senior partner at Clifford Chance, urges Indian law firms to join the global legal community. Popham stresses the need for international exposure and experience within the profession so that Indian lawyers can equip themselves with the expertise and experience to advise foreign and domestic clients on complex cross-border deals.
Whether India can maintain its remarkable economic growth rate will depend, in no small part, on the quality and integrity of its “soft” infrastructure. A lighter – though not overly permissive – bureaucratic touch, better functioning judicial and dispute resolution systems and the freedom for local and international businesses (including law firms) to enter the market and compete on equal terms are as crucial to India’s growth as good roads, telecommunications and power supplies.
