Potential of the Indian Legal Market Post-COVID-19
Prior to COVID-19, India was widely regarded as a key emerging market for the legal industry. With one of the world’s top six economies and two-thirds of the population considered “working age”, India was certainly an area of interest and potential growth. However, COVID-19’s damage to the Indian economy is predicted to be one of the greatest amongst emerging nations. Coupled with recent resistance to the potential liberalisation of legal rules for foreign companies, there remain a number of challenges which limit India’s ability to fulfill its potential as a major legal market.
Leading up to 2020, the Indian economy had been moving from strength to strength. In particular, its successful Information Technology (IT) industry and consistently strong economic growth led to forecasts that its GDP (Gross Domestic Product) would exceed that of the United States by 2050. Furthermore, by the end of 2019, it was regarded as the fastest-growing major economy in the world, contributing 3.2 percent of world GDP. Global forecasts by Capital Economics predicted in 2019 that India could deliver growth of five to seven percent for the next 20 years.
As well as this, India’s high return on equity (RoE) had been “amongst the highest in the world compared to both developed and emerging markets”, making the country an attractive option for investment opportunities. The legal market itself was also appealing, having the second-largest profession only second to the US with over 600,000 lawyers. Prior to the pandemic, the total legal services market was valued at over £1 billion, with an expected rate of growth much faster than the Indian economy as a whole over the next few years.
However, COVID-19 has inevitably disrupted this development. With emerging and developing economies most affected by COVID-19, India is expected to be one of the hardest-hit regions. India’s economy has already contracted 7.5 percent in the quarter ending in September and Eswar Prasad, an economist at Cornell University, has warned that this “sets back much of the progress” the country has seen over the last decade. Edward Glossop, an emerging markets specialist at Capital Economics, has stated that the Indian economy will be one of the weakest with GDP contracting by over 5 percent in 2020. It has been suggested that the incorrect handling of the pandemic, which resulted in a dramatic lockdown followed by a premature reopening of the country, has been a major cause of this regression.
COVID-19 could also mean that the liberalisation of Indian laws regarding foreign practice is delayed further. While foreign lawyers are permitted to operate on a “fly-in, fly-out” basis and are able to work on commercial arbitrations, currently they cannot establish their own offices in India. This has meant foreign firms have been forced to work with local counterparts, restricting legal work to only those that are major and well-connected, such as the Magic Circle law firms.
With COVID-19 placing a greater strain on the economy, Indian firms, already concerned with growing competition from their foreign counterparts, will more strongly resist attempts from foreign firms to establish themselves in the country. This reluctance can be seen recently when the Reserve Bank of India reiterated the Supreme Court Order which held that “that advocates enrolled under the Advocates Act of 1961 alone are entitled to practice law in India and foreign law firms or foreign lawyers cannot practice the profession of law”. RBI, therefore, asked banks “not to approve any proposal of foreign law firms to open a branch office, project office, or liaison office in the country”.
As a result, it is clear that there remain a number of barriers, aggravated by COVID-19, to the establishment of a strong legal market in India. The Indian economy has faced a significant blow during the COVID-19 pandemic and now faces a long road to recovery. In particular, COVID-19 has clearly restricted potential growth for the next few years. This is an important factor for law firms to consider when looking for new markets in which to establish themselves. Furthermore, the pandemic will lead firms to consolidate their practice in already-established areas, meaning the future of Indian legal development will inevitably be put on hold. This coupled with continuing resistance to the establishment of foreign firms in India means that the country remains restricted in its potential as an emerging major legal market.