Hot topic: The Awakening of a New India
With talk of a ‘new world economy’ and a
‘shifting economic balance’, India’s rise as an ‘economic power’
seemed inevitable. Many are comparing the rise of India to that of
China. But, for all the comparisons, India is not China. China’s
story is an industrial one, while India’s economic liberation is
being, and will continue to be, brought about through intellectual
services. However, there is no denying that there are
similarities.
Like China, India is growing at an incredible
rate. A report by Goldman Sachs (India’s Rising Growth
Potential, January 22, 2007) argued that India’s
sustainable growth potential has reached eight percent a year.
Trade barriers are also being brought down. And increased openness
is improving Indian businesses’ access to ideas, investment and
technology, which is in turn increasing their optimism. But while
China’s growth is built on manufacturing, India’s continues to be
built on its rising power in the software, design and services
industries.
But where did it all begin? India’s rise was
prompted by a foreign exchange crisis in the early 1990s. A loan
from the International Monetary Fund (IMF) resulted in a promise of
structural reform by the government, which in turn would lead to
the awakening of a new India.
Policy in India has since moved decisively
towards greater openness and this has truly transformed the
nation’s economic performance. But, during the 1990s, reforms came
slowly. It wasn’t until the turn of the millennium that India
started to take giant strides forward and truly connect with the
rest of the commercial world. The preoccupation of the world about
whether or not systems would survive as the clock ticked past
midnight on December 31st, 1999, led to a huge requirement - and
desperate shortage - of IT engineers. They were needed to help
ensure Y2K compliance and hold off the much-feared ‘Armageddon’.
The world looked to India and its deep talent pool of 1.1 billion
people for assistance, and inevitably it has never looked back. The
years that followed saw increased confidence from firms around the
world looking to outsource their back office functions as
familiarity grew with the Indian market.
While interest from international
organisations increased, Indian corporations were growing faster
than ever. They too had awoken to the possibilities and benefits
that structural reform could bring. Becoming ever more confident,
India’s IT, pharmaceutical and petrochemical companies began to
compete on the world stage. For Mukesh Ambani, the face of India’s
booming private sector and CEO of Reliance Industries Limited
(India’s largest private sector firm), there was no questioning
what was behind it. In an interview with Linklaters Quarterly, he
stated that the huge business opportunities currently being
presented “have come about because of the integration of India into
the global economy.” “This is a remarkable change from the times
when we lived in splendid isolation,” said Ambani.
Reforms continued to accelerate. Large areas
of the economy opened to foreign investment. And suddenly there was
more freedom for Indian companies to expand. India was becoming
more attractive to those living in it, and outside it, by the day.
Multinational organisations would soon be investing billions of
dollars into automotive, technological, aerospace and
pharmaceutical industries.
Consultancy Booz Allen Hamilton, and Nasscom,
India’s IT industry lobby group, believe engineering services
(which include work for the automotive, telecom and high-tech
sectors) could expand to a $40 billion market by 2020. There are
significant deals in the Aerospace industry, too. Billions of
dollars are being pumped into technological industries. And Indian
pharmaceutical companies, such as Ranbaxy and Dr Reddy’s are
investing in not only producing cheap, generic drugs – they are
developing original medicines with their own teams of scientists.
Headline making deals, such as Vodafone’s $11.1 billion acquisition
of a controlling stake in Indian mobile network Hutchison Essar,
are becoming less of an exception and more of the norm.
India is now losing its label as a third-world
economy, and with that goes its label for a third-world way of
business. According to a report from The Times of India,
the Indian economy will overtake the UK’s economy in just 10 years
– making it the world’s fifth largest. Today, doing business in
India involves dealing with complicated financial products and
instruments, and working with people whose ability and commercial
awareness is as sophisticated as anyone working in London, Hong
Kong or New York. India also has Western legal institutions and a
modern stock market.
India is now home to exciting, complex legal
transactions, but there are still challenges for lawyers and their
clients who want to do business here. The legal system is still
adapting, albeit not always rapidly, to a market that is quickly
becoming integrated into the global economy. However, lawyers
find the legal issues are clearly defined, while UK firms in
particular find it easier to do business in India, as the legal
concepts are, in many cases, based on English law. India’s
Companies Act was founded on the British Companies Act, for
instance.
Lawyers who work in India will discover
sophisticated clients with a real passion for business. They will
also uncover a pioneering spirit combined with unique enthusiasm,
hospitality and warmth. There’s no denying that integration into
global markets, although initiated, remains to be completed.
Barriers to trade, although lowered, remain relatively high
compared to other countries. And further reform to process and
infrastructure is still essential to continued development. But
this is just the beginning. As India continues to rise, opening up
to the world economy, the benefits of being part of its growth
become ever more compelling, for business and individuals
alike.