Viewpoint: Legal bottleneck can be eased by lowering bar on foreign firms

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India is booming and that means business is booming for Indian lawyers involved in international transactions. The elite Indian law firms who can service such transactions to international standards are seriously overstretched.

Unless something changes, the situation will worsen as India proceeds with more than $400bn worth of infrastructure projects – each requiring intensive lawyering – in the coming five years. Economic development and poverty reduction could be slowed by a bottleneck in the supply of legal services.

Part of the solution lies in dropping obsolete restrictions that constrain Indian law firms. These include limits on partner numbers, the unavailability of limited liability partnerships and a ban on advertising.

The bottleneck could also be eased by opening the legal services market – as each of the other so-called Bric countries (Brazil, Russia and China) has done – to allow international law firms to help meet rapidly growing demand for legal services.

The market is closed because the Advocates Act of 1961 is construed as permitting only Indian advocates to practise. The Bar Council of India, which regulates the profession, adamantly opposes foreign law firm entry.

Until recently, its position had wide support among Indian lawyers. Litigators, who comprise the overwhelming majority of the profession, feared that international lawyers would compete for court advocacy work. Local law firms were not ready to compete with international law firms, which have deeper pockets and operate free of the constraints on Indian law firms.

Change is being driven by reform-minded politicians, including Manmohan Singh, prime minister, and Kamal Nath, commerce and industry minister. Bilateral discussions concerning legal services market liberalisation opened with the UK in January 2005 under the auspices of the Joint Economic and Trade Committee. Discussions with the US began in December 2006 with the creation of a bilateral working group on legal services established under the US–India Trade Policy Forum. Progress is being made in the official forums.

Informal meetings on their periphery are also increasing the flow of information and defusing some of the Indian legal profession’s concerns. Last month, for example, the Law Society of England and Wales hosted a delegation from the All India Bar Association; shortly afterward, the AIBA’s chairman publicly stated that the AIBA no longer opposed the entry of international law firms.

Several themes are emerging from these formal and informal discussions. Firstly, any opening of the market will initially be partial. International law firms may be able to opine only on foreign law, as in Brazil and China, rather than both domestic and foreign law, as in Russia; or they may be constrained to practise in associations or joint ventures.

Secondly, liberalisation will be gradual. Indian law firm owners – an influential group – want the constraints on their firms removed, and time to strengthen their firms, before facing direct competition.

Finally, there is a growing consensus that discussions with the US and UK must stay on track, be run transparently and produce results in the near term to ease the legal services supply bottleneck.

Indian politicians have an especially key role to play in ensuring that the outcome balances the objectives of all stakeholders – law firm owners, but also policymakers, clients, law firm employees and future members of the profession.

The author is the global head of the India practice at the law firm White & Case LLP

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