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India - A land of opportunity and challenge

Eversheds Chairman Alan Jenkins discusses what India has to offer businesses and their lawyers

Recently the Economist Intelligence Unit stated that: “the general election that concluded on May 13th resulted in the formation of a new coalition government that is stronger than was expected, and this outcome will provide a significant boost to India's political and economic prospects”. Since the election we have also had the formation of a new government and the Union Budget on July 6th. What does this all mean for British, European businesses and their advisers, especially lawyers?

Already before the election, and more especially before the global financial crisis, India had been heralded as a hot growth market with ambitious plans. It was one of the “BRIC” countries famously identified by Goldman Sachs. This had come about as the progressive liberalisation of the Indian economy launched in 1991 took root and was further developed. To visit parts of New Delhi, Mumbai, and other Indian cities is to witness the emergence into the 21st century of a country with ancient cultures and profound sense of history. It is also to witness the enormous contrast between the bright new, vibrant cities, or parts of them, with the burgeoning middle class, and the poverty and squalor of hundreds of millions of the urban and rural poor.

To set the scene in this way helps to put in context the enormous challenge the new Congress led government is facing building on its previous five years in office. In his budget speech, Finance Minister Mukherjee told the Indian Parliament that: “The first challenge is to revert the economy back to the high GDP growth rate of nine percent per annum at the earliest,” and he went on: “the second challenge is to deepen and broaden the agenda for inclusive development”. The second challenge responds to the need to include the poor and disadvantaged in India’s growth and development and India needs to revert to the rate of growth in its economy mentioned by the Minister if it is to be able to find the resources to meet the challenge.

To this end the Minister announced a huge increase in government expenditure. The overall size of the budget increased by 36%, with much of the expenditure going on measures for the welfare of the common people. Much of this may seem somewhat remote from the concerns of foreign business people. As such people consider the opportunities which India increasingly presents, it is however highly relevant that the government should be sharing and seen to be sharing the proceeds of growth and prosperity. To do so gives the less well off a stake in the success overall of India; it lifts their purchasing power and it makes the Indian economy because of its sheer size an even more attractive potential market for foreign goods and services. Of course, this will take time and much remains to be done to make differences real and tangible. A platform of stability, political, economic and social, is a pre-requisite for successful and mutually advantageous foreign investment and trade. Foreign businesses have a stake in the future success of the India government’s social programmes even if they have no direct influence on them nor benefit from them.

There is however much else to entice the foreign investor. The long term fulfilment of India’s aims depend on the successful and rapid implementation of a massive programme of infrastructure development. Power generation and its distribution were a particular feature of the Minister’s speech. So too were roads - much of India’s food production goes to waste, simply because of the inadequate distribution system. Its rail network requires billions of dollars of investment to enable the transportation of enormous numbers of people and goods, to have the ability to compete where appropriate with airlines, and help meet India’s green agenda. Ports, airports, metro systems, bridges, schools and universities, healthcare……………. the list goes on and on, as many have commented, for example PricewaterhouseCoopers in its report “Infrastructure in India – a vast land of construction opportunity”. Expertise is required as well as money. UK and other European service businesses, in competition with those from around the world in Asia and the USA are pressing hard to offer their capabilities. In some sectors this is easier than in others. Amongst the hardest nuts to crack is that of legal services. There have been many discussions over many years with different authorities and representative bodies in India trying to agree an opening up of the practice of law in India to foreign law firms. There are signs that climate change is coming to this debate as well. With the appointment of new ministers to the relevant portfolios in Delhi it remains to be seen whether a combination of these changes, a previous thawing and India’s need for external capital and expertise will lead to significant progress in liberalisation in the legal sector amongst others.

Meanwhile, whilst efforts must continue, much trade and investment is being done and there is a multitude of opportunities for lawyers and their clients on the horizon as the Indian government moves to fulfil its manifesto and meet the expectations of its electorate.

Finally, lest we overlook it whilst focussing on the needs and opportunities within India, we should remember that India is an active participant in world markets. Companies such as Tata, Hinduja group, Reliance, Ranbaxy and many others are taking their products and services around the globe. Indian businesses have been very important investors in the UK alone in the last few years; they are present in many parts of the Middle East, Asia and Africa too, and English law has an important part to play as a respected neutral choice with which the parties are often familiar.

So, whilst we may be frustrated with the slow progress of opening up in India, English lawyers have recognised and will continue to seek to build upon the challenges and opportunities India in all its facets offers.

Published in Legalweek, 30 July 2009.