Challenging the status quo

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In Lagaan – the Bollywood blockbuster that mixes tales of taxes, passion and cricket with song and dance – the underdogs triumph, but only after an epic battle

The saga of India’s tax system over the last 50 years has not provided as much nail-biting entertainment, but current attempts to reform it are being watched with almost as much interest as the cricket match that dominates Lagaan. And it appears that the stakes may be as just high.

As detailed in the first of this month’s Spotlight features (Cracking the new tax code, page 27), the proposed tax regime is expected to usher in sweeping changes that will affect both domestic and foreign companies. Businesses and investors are watching keenly as existing tax rules, which have long cast a shadow on what is otherwise an attractive destination for foreign investment, look set to be rewritten. However, those companies with investments structured through offshore financial centres like Mauritius are watching with trepidation, fearing that the attractive tax benefits they have long enjoyed are on the brink of being withdrawn.

Leader 0911Our second Spotlight feature (Stepping up the fight, page 31) throws light on recent developments in the fight to enforce intellectual property rights in India – an epic battle just as worthy of the attention of Bollywood’s filmmakers (it is already high on the agenda of Bollywood’s IP lawyers). Our coverage describes how renewed judicial resolve and efforts by industry bodies are reshaping the landscape, but cautions that progress is patchy. While Arjun Rajgopal, an associate at Nishith Desai Associates, commends the courts for being “extremely creative and innovative in designing new remedies,” Sheetal Chopra, head of the IP division of FICCI, portrays a bleak scenario in which the country’s police “do not even know who the copyright owner is”.

Such concerns would certainly be misplaced in Singapore, the focus of this month’s Cover story (The lion and the tiger, page 19). As our editor Vandana Chatlani reports, the island state has worked hard to promote itself as a base for inbound and outbound Indian investment. While Singapore provides “an alternative to Mauritius for investments into India,” as noted by Andrew Martin, a partner at Baker & McKenzie Wong & Leow, it is also used by Indian companies as a stepping stone to resource-rich Indonesia and beyond.

The Lion City’s efforts to cash in on India’s growth are boosted by its emerging role as an international arbitration hub. As Nicholas Peacock, a partner at Herbert Smith points out, “awards from Singapore are enforceable in India”. Add to this its purpose-built arbitration facilities, competitive pricing, efficiency and image of impartiality, and our timely coverage of Singapore’s role as India’s legal base outside India takes on greater significance. Yet even as this happens, India’s legal and financial markets are maturing to the extent that Singapore may lose some of its relevance. Several observers note that an increasing number of India-focused deals are being financed and executed domestically without relying on overseas centres of capital or expertise. As Narayan Iyer, a partner at Linklaters, predicts, “India will become more important for India”.

A belief no doubt shared by Sanjay Kamlani, the co-CEO of Pangea3, which India Business Law Journal has just named Legal Process Outsourcer of the Year, 2009. Writing in this month’s Vantage point (The new legal innovators, page 26) Kamlani contends that the trends that have emerged in India’s legal process outsourcing (LPO) industry “will impact – if not lead – innovation in the global legal services industry in the decade to come”.

The fast-growing LPO sector is also the focus of this month’s Intelligence Report (page 41) in which India Business Law Journal announces the winners of its inaugural Legal Process Outsourcing Awards. The awards are based on an extensive survey of LPO clients, who were invited to use five key performance indicators – quality of service, consistency and reliability of service, ability to customize services, capacity to innovate, and value-for-money – to rate the relative competencies of LPO service providers. The winner of the coveted LPO of the Year award is Mumbai-based Pangea3, which is widely praised for its formidable legal expertise as well as its consistently high quality, accuracy, speed of delivery and excellent value.

This month’s What’s the deal? (Generating attractive returns, page 37) investigates another area of growth that is challenging the status quo. Shantanu Surpure describes the opportunities for private equity players to invest in small-scale power projects in India. His analysis is based on a recent deal involving two hydro-electric plants in Himachal Pradesh. While on the surface it may look like just another example of money being poured into the bottomless pit that has long epitomized India’s power sector, closer analysis reveals key differences between this deal and the often-fraught investments in mega-power projects that took place in the early 90s.

As our coverage reveals, what makes this investment by a US-based private equity fund into a mountainous region of northern India so significant is that it signals the considerable opportunities that lie in smaller, more environmentally sustainable power projects.

If the story of Lagaan is anything to go by, the underdog inevitably triumphs. India-watchers would be well advised to look beyond the big and the bold.