The calculus of confidence

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The can-do spirit that has characterized India over the past decade is taking a beating

While this is hardly surprising given the policy paralysis that is crippling the economy, it suggests that any attempt to steady the course will need to capture the imagination of people both inside and outside India. This is not the time for half measures and the government will need to act boldly if it is to lift sentiments.

India’s ailing airline industry is a case in point. Several airlines are drowning in debt and whether they can be turned around depends to a large extent on how the government handles the crisis in the industry.

An analysis of the regulatory and fiscal challenges faced by the airline industry in this issue’s Cover story (page 17) reveals that the government can do a lot to course correct. Top of the list is to reduce and standardize taxes on aviation fuel but, as Amber Dubey at KPMG-India suggests, this may be difficult given the political realities of India.

IBLJ1206 LeaderThe government is also being lobbied to allow foreign direct investment by foreign airlines, though the jury is still out on whether this would be forthcoming or even effective. Saroj Datta, a former executive director of Jet Airways, believes that such investment “may be useful and may help, but not if government comes up with regulations against a carrier flying a particular route or if it continues to be the mother of Air India”. Clearly the piecemeal policy making that has characterized the government’s approach to aviation cannot continue if the airline industry is to soar again.

Writing in Vantage point (page 16), the director general of the Confederation of Indian Industry, Chandrajit Banerjee, makes a similar point: “India can only revitalize its economy and attract new investments through serious sectoral reforms. Failure to do so will cause stagnation and drive businesses away.” Strong words that feed into the growing debate about how best to forge a way forward.

But not all arms of the state can be criticized for lacking resolve. Some – such as the Securities and Exchange Board of India (SEBI) – continually update and review their policies, although they may not always get it right. As we detail in this month’s What’s the deal? (page 33), SEBI recently decreed that capital market offences which could earlier be settled through consent orders will now need to be resolved in the courts.

The change in the rules may be intended as a warning to offenders, but it seems likely to be counterproductive – not least because it will add to the burden of an already overburdened court system. As Akil Hirani at Majmudar & Partners remarks, “the eventual result may just end up being prolonged litigation with an eventual overturning of SEBI’s orders”. None of this augurs well for capital markets or investor sentiment.

Investors have also been left confused by inconsistencies in policy about put options, which provide a useful exit mechanism for foreign institutional investors. While the Reserve Bank of India (RBI), as the country’s foreign exchange regulator, has a non-official policy against put options, the Ministry of Finance, which lays down broad investment policy, has a diametrically opposite view.

In No way out (page 29), Umakanth Varottil, a professor of law at the National University of Singapore, describes how the use and enforceability of put options is not clear-cut in Indian law. Varottil argues that unless the RBI reexamines its position, which curtails exit options for foreign institutional investors, there will be “a chilling effect on foreign investments into India”. Will this dire warning fall on deaf ears?

One sector in which peoples’ concerns haven’t fallen on deaf ears is real estate. Indeed, in this issue of India Business Law Journal several real estate lawyers are listening intently to the industry’s key clients (Real estate riddles, page 23). In what is essential reading for everyone with an interest in the real estate sector, a specially assembled panel of lawyers provides detailed answers to a range of questions posed by the corporate counsel of Kotak Investment Advisors, Larsen & Toubro and Jones Lang LaSalle.

This month’s Intelligence report (page 37) presents India Business Law Journal’s sixth annual survey of the leading international law firms for India-related legal work.

This has been a challenging year for India and for foreign law firms which do India-related work despite being firmly shut out of the Indian legal market. With increased competition for such work, several new firms have joined our rankings.

As in previous years, our coverage reveals the top 10 foreign firms for India-related work, as well as 10 key players, but five new places have been created for significant players, bringing the number to 15. We also highlight 25 regional and specialist law firms and 40 firms to watch that we believe in-house counsel should keep well within their sights.

This issue of India Business Law Journal marks the start of our sixth year of publication and of bringing meaningful analysis and practical advice to our readers. Since our first issue in June 2007, we have strived to make sense of complex transactions and regulations, and to bring clarity to areas of confusion or ambiguity, while also seeking to foster debate on key issues.

The past five years have been both a challenge and a privilege, and an experience that all of us at India Business Law Journal have enjoyed immensely. As we mark this important anniversary, we would like to thank our readers, our contributors, our advertisers, our correspondent law firms and our editorial board members. We look forward to continuing to serve you in the years ahead.