A Look at Recent Developments Having an Impact on India’s Legal Services Sector
India’s economic growth is a spontaneous generator of business for law firms and the country seems to have regained its mojo despite the impact of the pandemic, continuing global geopolitical tensions and high inflation. We are expected to be one of the fastest-growing large economies in 2023, by various estimates.
Apart from the inherent attractiveness of India’s domestic market, the implementation or tweaking of various policies (e.g., the Production Linked Incentive scheme, the opening of the space sector to the private sector and encouragement of public-private partnerships, regulations around drones, etc.) has been a major force of economic activity. There is also the fact that multiple new technologies (AI/ML, drones, 5G, IIoT, 3D printing, etc.) have matured rapidly, creating new use cases in business, healthcare, retail, defence, space, agriculture, mining, governance, etc. In turn, these have evolved as new ventures.
For law firms and lawyers, such a multi-faceted business expansion is a growth enabler. The slowdown in certain sectors (IT and edtech, for example) has led to the unfortunate consequence of layoffs. This trend is visible not just among newer ventures but also applies to unicorns and more-established enterprises. This too is a driver of growth for professionals in the legal sector.
Factors that will impact Indian law firms
Three specific triggers will shape the fortunes of law firms and lawyers in the next year or so, which are as follows: –
- The operationalizing of Grievance Appellate Committees (GACs);
- The Bar Council’s decision to allow foreign law firms/lawyers to practice in India (under certain conditions); and
- The trend of global enterprises from different sectors establishing and growing their captives (GCCs) in India.
Grievance Appellate Committees
The Grievance Appellate Committees (GACs) were constituted under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, to make the internet and social media platforms (the so-called “intermediaries”) safer and more trusted and the platform or service providers and users more accountable.
Social media users who have complained to social media firms such as Meta, Twitter, Google etc. and have not received a satisfactory response from the firms’ designated grievance officers can appeal to the GAC which is a digital platform operational w.e.f. March 1, 2023. After due consideration of every appeal, the GAC will either uphold or overrule the decision of the social media intermediary’s grievance officer; it may also recommend that the intermediary take different actions altogether from what was recommended or taken by the grievance officers.
To comply with the new rules, social media intermediaries will need to ensure that adequate legal professionals are allocated to review user complaints, advise grievance officers and represent the social media intermediary before the GAC. This is important because non-compliance can result in significant financial liabilities (including legal costs and penalties).
Conditional permission for foreign lawyers or law firms to operate in India
The Bar Council of India recently permitted foreign lawyers and law firms to practise in India in non-litigation matters around foreign law, diverse international law and arbitration. Of course, this is subject to reciprocity i.e., Indian lawyers or firms being allowed to practice in those jurisdictions.
Although it is too early to predict the specific impact of this decision and how long it might take for these to show up, it can be said that this move will eventually affect both revenue and cost structures for Indian law firms. As foreign firms establish a presence in India, we can expect the following changes: –
- Indian firms will see a reduction in referrals from foreign firms (a significant source of business for many firms); and
- Some Indian legal professionals will move to foreign firms. The entry of foreign firms will also raise the general compensation level in the industry, putting further pressure on the profitability of firms that rely more on corporate advisory. Indian firms will also have to look at ways to keep their partners and staff engaged and money may not be the only avenue to do so.
But given that new laws are coming up around complex new technologies such as AI, space etc., it is a good thing that India will get access to global specialists. This will also help India’s lawmakers frame more effective legislation in the days ahead.
More Global Capability Centres in India
Given India’s large technical talent pool, many global corporations established their captive centres in India over the past decade or so. The mandate of these GCCs was to develop and support the IT needs of the enterprise. This was seen as an alternative to IT outsourcing, and a more effective way to ensure that confidential information remains within the company’s direct control.
Buoyed by the success of their captives and given that IT/Digital was becoming deeply embedded within every business, enterprises from more industries began to increase their investments to scale up their GCCs. Innovation, product design, UX, R&D, analytics, AI, etc. have all been included in the expanded mandate for GCCs.
If the parent company has a relationship with a certain law firm, then the latter may be incentivised to establish operations in India sooner than they may otherwise have planned. Therefore, this is another factor that plays a role in determining the growth of some law firms and lawyers in India.
It is difficult to predict how each of these trends will shape the Indian legal services sector; this depends on which force is dominant and how long it takes for their respective impact. But it is fair to say that the next few years will belong to those law firms that are prepared to adapt and respond to these and other forces shaping the industry.
Photo by Sora Shimazaki: https://www.pexels.com/photo/serious-ethnic-lawyer-discussing-new-case-with-colleague-5668798/
Apart from the inherent attractiveness of India’s domestic market, the implementation or tweaking of various policies (e.g., the Production Linked Incentive scheme, the opening of the space sector to the private sector and encouragement of public-private partnerships, regulations around drones, etc.) has been a major force of economic activity. For law firms and lawyers, such a multi-faceted business expansion is a growth enabler.