2019/11/15 Liberalization of Legal Services: An Important Reform for Attracting Investment in India | cogitASIA CSIS Asia Policy Blog

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Liberalization of Legal Services: An

Important Reform for Attracting PARTICIPATE

Investment in India China’s Maritime

by cogitASIA Staff • July 8, 2019 • 0 Comments
Ambitions in the
First Island Chain
By Amy Hariani —
and Beyond
November 18 –
CSIS

The Hidden History

of Burma: Race,
Capitalism, and the
Crisis of
Democracy in the
21st Century
November 20 –
CSIS

Re-examining the
History of
Tiananmen Square
November 22 –
CSIS

China’s Power: Up
for Debate
December 4 –
The Supreme Court of India, shown here, issued a landmark decision in 2018 which
reaffirmed a lower court decision which held that FIFO practice is permitted under Indian law, CSIS

but more progress is needed to enhance India’s attractiveness for investment. Source:
Chinese
Wikimedia user Pinakpani, used under a creative commons license.
Communist
Espionage: An
Status: Incomplete – Prime Minister Modi had reportedly requested the Intelligence Primer
Ministry of Law and Justice to prepare a draft regulation that would open Book Launch

India’s legal market to foreign lawyers. However, no steps have been taken December 5 –
CSIS
since.

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2019/11/15 Liberalization of Legal Services: An Important Reform for Attracting Investment in India | cogitASIA CSIS Asia Policy Blog

Difficulty: High – Moving forward on such a reform would be politically tricky, INTERACT
as it would attract protests from a politically-connected class of domestic
lawyers, as well as attract the criticism that Indian jobs would be uprooted.
CSIS Asia
This is the fourteenth installment in a series of articles on the Modi Reforms Programs
Scorecard by the staff and experts at the Wadhwani Chair in U.S.-India Policy. The A Twitter list by @BeanJD
series seeks to provide analysis on why reforms marked as “Incomplete” or “In
Progress” have not been completed, and what impact such reforms could have on Kartikeya Singh
Retweeted
specific sectors or the economy at large.
Matt Baker
@MattBakerEnergy
The legal services industry is not traditionally viewed as a significant driver of foreign
direct investment (FDI) flows, but perhaps it should be. Not for the scale of law firms’ Not good
https://twitter.com/chinadia
capital investments, but for what it represents: open markets. Law firms and lawyers
ue/status/11943181910376
are often at the forefront of mergers & acquisitions, greenfield investments, and deal 761
making. Typically, markets with a positive trend of FDI growth also see significant
economic activity generated by law firms and lawyers.

As a growing number of companies around the globe reconsider their footprint in

Kartikeya Singh
China and evaluate if and where to re-route global manufacturing supply chains, @KartikeyaSingh
lawyers play an important role in the planning and execution of these multi-million Great full-circle moment
dollar decisions. Ensuring that companies can access their preferred legal counsel is being able to connect with
critical in moving investment forward when legal issues arise. As India looks to take fellow alum of
@FletcherSchool to help
advantage of this dynamic, liberalizing legal services could help facilitate and
forge strategic energy ties
expedite decision-making by making it easier for legal advisors to corporate decision- between the states of
makers get to “yes” on India. Massachusetts and Tamil
Nadu.
Given the global weight of India’s economy, it is somewhat of an anomaly that foreign https://twitter.com/Fletcher
hool/status/119504125390
law firms are still excluded from the market. India is one of the few, and perhaps the
15041
only, large economies that continues to prevent foreign investment in the legal
services sector. Countries like China, South Korea, Singapore, Brazil, Mexico and Embed View on Twit
Russia and others allow foreign law firms to set up local offices, which are subject to
local rules and restrictions. These restrictions, designed to manage the entry of
foreign law firms and protect developing domestic legal markets, include limiting
foreign lawyers to practicing foreign law only (as opposed to local law) and
restrictions on the number of local lawyers a foreign firm can hire in-country.

Of course, it is important to recognize the progress India has made towards legal
services liberalization. Foreign lawyers can travel to India to advise clients on foreign
legal issues and close deals, a practice known as “fly in, fly out” (FIFO). The FIFO
practice is a good first step and allows international lawyers to travel to India to
finalize investment decisions with their clients. In a landmark decision last year, the
Supreme Court of India in Bar Council of India v. A.K. Balaji and Ors. (“A.K. Balaji”),
reaffirmed a lower court decision which held that the FIFO practice is permitted under
Indian law. The court also instructed the Ministry of Law and Justice and the Bar
Council of India to frame rules on the practice, establishing stronger guidance and
providing a prudent and reasonable outcome.

Still, given the restrictions outlined above, there are no international law firms with a
permanent presence or offices in India. The government of India appears to have
recognized the importance of the issue, testifying in the A.K. Balaji case that closing

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2019/11/15 Liberalization of Legal Services: An Important Reform for Attracting Investment in India | cogitASIA CSIS Asia Policy Blog

the liberalization issue at the “earliest possible [is of] utmost importance.” However,
that statement, made in 2012, is now several years old, and our conversations with
the Government of India suggest that the issue is not on the new government’s list of
high-priority reforms.

Despite this, the Modi government’s desire to improve India’s Ease of Doing Business
ranking may prompt some short-term action. Several parameters on the World Bank’s
annual “Ease of Doing Business” ranking are directly tied to accessibility of legal
counsel, which goes hand-in-hand with legal services sector liberalization.
Specifically, the “enforcing contracts” and “resolving insolvency” evaluations, where
India ranks #163 and #108 respectively, will in almost all cases involve legal services
as well.

Even the use of FIFO, despite the reaffirmation of the supreme court, is hampered by
a lack of clarify surrounding applicable rules and regulations, which leads many
attorneys to provide extremely conservative advice to clients. The government of
India – primarily embodied by the Ministry of Law and Justice and the Bar Council of
India – would be well served by providing additional guidance on FIFO rules quickly,
in line with international best practices and in consultation with the foreign and
domestic legal services industries. Clear guidelines will provide the certainty that
lawyers and their investors demand when making investment decisions.

As a longer-term and more sweeping next step, the government of India should
consider legislation amending the Advocates Act of 1961. Tabling this legislation
would create a pathway and regulatory structure for the entry of foreign law firms into
India. If Prime Minister Nardendra Modi and the new Indian government can deliver
on this bold reform, it would send a major signal to the global business community
that India is serious about attracting global investment.

Ms. Amy Hariani is Vice President and Legal Counsel at the U.S.-India Business
Council.

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