A burning topic in the domestic legal industry over the last few years has been the liberalization of the legal services sector, essentially allowing foreign law firms to establish offices in India. There is little doubt that a regulated, step-by-step easing of the regulations will be beneficial to everyone concerned. However, what sometimes escapes notice, are the challenges that foreign law firms will face even if allowed to set up offices offering legal advice on Indian law.
The first issue that is likely to crop up is the licensing process for foreign attorneys, or being ?called to the bar?, as it is known. Virtually every jurisdiction in Europe, North America, and Asia Pacific has a licensing process that begins with a Bar exam followed by a character and fitness enquiry, while India has no such process. Yet, India demands reciprocity, which will not be granted to Indian lawyers without some sort of qualification exam. This will make it far more difficult for foreign attorneys to gain admission to the Indian Bar Councils, since there is no yardstick by which their qualifications can be measured. The lack of a qualification process not only dilutes the talent pool, it also makes it much harder for a law firm to be able to recruit the top talent, because they have very little with which to decipher how good a potential recruit is.
That India has top quality legal talent is a well-known fact, but this pool is extremely small. Therefore, foreign law firms who enter India will essentially be fighting to recruit the same lawyers who are already ensconced in Indian law firms. While this could lead to a bidding war and raise salaries significantly, there will still be a severe shortage of high quality lawyers since the education infrastructure isn?t improving proportionately with the rising demand for high-quality lawyers. To bridge this gap, and to differentiate themselves from Indian firms in the local scenario, foreign law firms would need to bring specialized expertise, and that will be a problem, especially if the foreign counsel is to advise on Indian law. While most legal systems are distinct from each other, Indian corporate law has some unique aspects to it that can confound even the most battle-hardened veterans. The very concept of Foreign Direct Investment/FEMA, Stamp duty, and even aspects of the Companies Act are likely to be completely counter-intuitive to many lawyers practicing in foreign jurisdictions. To expect them to be able to learn the law in time, and to acquire mastery of it would be optimistic at best, especially when one takes into account the outstanding Indian lawyers who are the authorities on these areas of law.
There are other barriers to entry as well. Indian law firms cannot actively promote or solicit business, and cannot maintain comprehensive websites. This would severely curtail the marketing capabilities of global law firms, and consequently the potential for growth in the domestic market.
The most important barrier could be the cost-effectiveness, or lack thereof. It may simply not be cost-effective to set up an office in India for many of these firms. The per-hour billing rates at Indian firms, though expensive from Indian standards, are merely a fraction of what such firms routinely charge in Europe and North America. Although entry-level salaries are much lower in Indian firms than abroad (for now), all other overheads are comparable to Europe and North America, such as real estate, law-related databases/software/libraries, infrastructure expenses, the overall cost of doing business, and even wages at the Partner level. The lack of economic viability will probably be the most vital factor determining the potential success of foreign law firms in India.
The challenges foreign law firms face in India are immense, but it is likely that there will be a way for them to overcome them, while remaining competitive with the top Indian law firms, although this is isn?t a foregone conclusion, especially if their target is the domestic market. The industry could conceivably get somewhat liberalized at any time, but more than the Indian law firms, it?s the foreign law firms that need to tread carefully.
?The author is an attorney at J. Sagar Associates. These are his personal views