India must promote foreign investment in legal services

insolvency and bankruptcy, IBC
India's IBC law may have seen betterment over the course of seven years but there is a long way to go achieve its desired outcome.

India has finally taken a leap of faith in allow foreign investment in legal services after multiple rounds of litigation before various high courts and the Supreme Court. This will allow foreign lawyers and law firms to practise and set up offices in India. In a major liberalising step for legal services, the Bar Council of India has said that such companies can practise foreign law and diverse international law and international arbitration in India if they also allow similar treatment to Indian lawyers and firms. BCI and several other bar associations had earlier opposed the globalisation of legal services.

BCI’s decision is a first step towards long-due reforms in legal services. There is still a long-list of pending reforms needed to make India a global power in the sector. Also, there are several other reforms which analysts believe will help attract foreign law firms to invest in the country.

Attracting foreign investment in law

For one, the government must work on simplifying the regulatory framework governing foreign law firms and make it easier for foreign law firms to understand the rules and regulations. The government must also ensure a level-playing field so that foreign companies do not feel stifled by local players. This will also ensure that Indian law firms are not overshadowed by companies from abroad.

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While the BCI maintains that the standards and proficiency of Indian lawyers and firms are up to international standards, it goes without saying that not all Indian universities offering legal education are up to the mark. Improving the quality of legal education in the country would make it easier for foreign law firms to hire talented Indian lawyers and would also enhance the reputation of Indian lawyers in the global legal community. India has a large pool of legal talent, but the quality of legal education in the country needs to be improved.

The country will need to promote foreign investment in the profession. Encouraging foreign investment will create more demand for legal services and will provide foreign law firms with more opportunities to work on high-profile deals and cases. In fact, it is simply unfair that law remains one of the rare areas where FDI is not allowed  and almost all other sectors of the economy have been opened up including strategic sectors such as defence, railways, banking and insurance.

Restricting domestic law firms from accessing FDI will put them in an unfavourable position vis-a-vis foreign firms that are likely to have greater access to capital and can now operate in India. The Indian legal sector can also benefit from better innovation, technology, price competition and quality of services that FDI can enable.

Can India benefit from globalisation

With the latest move, companies and lawyers from other countries can now undertake corporate and transactional work, including advising clients on joint ventures, mergers and acquisitions and intellectual property matters, and drafting contracts. Offering advice on domestic law, participating in litigious matters or appearing before courts, tribunals and other authorities are still restricted for these players. The Bar Council hopes that the benefits of the move will be mutual.

Allowing foreign law firms to practise in other countries promotes healthy competition among legal professionals, leading to increased quality of service and lower costs for clients.

The move will not only open up avenues to global competition but also ensure the legal profession’s growth. Among other benefits of globalising legal services, BCI hopes that it will promote India as an international arbitration hub. As India has opened the gates to foreign companies on the principle of reciprocation, the same will benefit Indian lawyers too in terms of employment and retainership opportunities as well as remuneration and global exposure.

Further, with the growth of international trade, businesses need legal advice from experts in different jurisdictions. Allowing foreign law firms to practise in a country helps businesses to navigate the legal systems of different countries and facilitates cross-border transactions. This also opens pathways for companies at home to get specialised expertise in certain areas of law that are not available locally.

The legal sector has long remained isolated from the ongoing reform process in the country. As the Indian economy eyes to touch a size of $5 trillion by FY27, domestic demand for quality legal services is likely to rise. Effective legal advisory services and dispute resolution mechanisms are also pivotal for a thriving business environment and the ease of doing business.