The Indian Economy Blog

February 16, 2008

Liberalization? It’s Good For Them, But Not Us

Filed under: Basic Questions,Legal,Regulatory reforms — Prashant @ 4:21 am

Should foreign law firms be allowed into India?

No, says Cyril Shroff, Managing Partner of Amarchand Mangaldas, one of India’s largest law firms.

Amarchand and other large Indian law firms have benefited immensely from liberalization in India. However, when it comes to opening up the legal sector, here’s Mr Shroff touting shibboleths like a good old protectionist from India’s socialist past. Unfortunately enough, Shroff’s self-serving arguments have a pedigree in India. They spring from the same well as Rahul Bajaj’s Bombay Club, or its older cousin, the Bombay Plan, and to that extent are somewhat predictable.

Shroff’s hypocrisy is galling. However, in my opinion, even more appalling is the mediocrity of the writing and the flimsiness of Shroff’s arguments — blanket claims not backed up by any evidence, non-sequiturs galore and a lack of logical coherence. Is this really one of India’s best legal minds?

For instance, take this piece of bombast, “the law ministry’s proposal in its current form cannot be accepted”. Ummm… this proposal cannot be accepted by whom, exactly? Not to be too snarky but the mushy, vague pabulum which characterizes the entire article would fit well here.

Or the “national interest” line that Shroff trots out several times in his essay, almost like a mantra. One wishes that Shroff took the trouble to spell out exactly why the entry of foreign law firms is inimical to India’s national interest.

The tour de force might well be Shroff’s claim that “the sole pressure (behind foreign law firms’ interest) is that of a lucrative market and market access. Nothing else.”

I’m shocked. Shocked! Those greedy, money-grubbing foreign *#$% lawyers! Of course the foreign firms in other sectors that are making a beeline for India are not really interested in market access or such like. Not as long as they keep paying big fees to Amarchand Mangaldas’ and their legal brethren, I presume.

Scour the article closely and you’ll notice that one constituency Shroff hardly mentions are clients, which is telling. Why doesn’t Shroff bother discussing what consumers want, and whether the entry of foreign law firms is in their best interests. After all, that’s the litmus test, isn’t it? But nope. Shroff takes it upon himself to declare that there is no pressing need to permit the entry of foreign firms.

When it comes to his next essay, I suggest that Shroff take a page or two from Bastiat. At least, we’ll have something to laugh about.

The original article isn’t accessible on the Business Standard web site , thanks to linkrot. I’ve reproduced Shroff’s article in full after the fold (emphasis mine).

The liberalisation of the legal service sector is undesirable at this point in time.

The pressure from overseas to open up the legal service sector to foreign law firms has mounted recently. Much debate and speculation now surrounds the subject with the law ministry being tentatively inclined to favour the liberalisation of the legal service sector. However, the majority of Indian law firms are strongly opposed to the proposal to open up the area. There are also issues of national interest that must be considered before proceeding to liberalise the sector.

The proposal to open up the legal service sector is premature. The extensive debate and consultation that should have preceded such a move has yet to take place. An expert body needs to examine it. This is a matter that will affect not just the legal profession but also the nation at large. The industry players must be consulted and engaged in a meaningful way. Any decision-making process should also occur within the framework of the WTO and GATS negotiations, especially since India has not included legal services in its current offer in the WTO and GATS negotiations. That is to say, the decision cannot be made in a unilateral or bilateral process but only through the designated multilateral process. Moreover, the proposals of two Joint Economic and Trade Committees are yet to be considered. The issue is also before the Bombay High Court and a decision as to whether foreign law firms are permitted to practise law in India is impending. The final outcome of this case must be awaited before proceeding in any way.

Further, in relative terms, Indian law firms are at a nascent stage of development. They are practising the “profession and cottage industry of law” in comparison with the proportions that foreign law firms have assumed in their practice of the “business of law”. As matters stand today, Indian law firms have a disadvantage in matching the sheer organisational magnitude and financial means that foreign firms command because of history and because Indian firms are subject to various restrictions. Indian law firms are not permitted to organise themselves in any form other than an unlimited partnership. They cannot have more than 20 partners and cannot advertise or raise capital. Even assuming that the proposed Limited Liability Partnership Act will permit law firms to take the form of limited liability partnerships (LLPs), the migration to this form from a partnership needs to be recognised by the professional authorities and besides, such migration has enormous tax implications, thus making the option unattractive.

Foreign firms, on the other hand, are not encumbered by such limitations. Therefore, the regulatory status quo with regard to Indian firms cannot remain and the creation of a level playing field is the need of the hour. Liberalisation without first putting Indian firms on an equal footing will be unfair and will put them at a competitive disadvantage. Creating a level playing field is a precondition to moving further. No sector in India has been opened up with the regulatory framework loaded heavily against the local players. Why the legal field?

Besides being prejudicial to the interests of the Indian legal profession, liberalisation also has important implications for the nation. The legal profession is instrumental to the administration of justice. To permit foreign lawyers to encroach on this extremely important aspect of a democracy could be contrary to public interest. There is no pressing need to permit the entry of foreign firms. If better advice on foreign law is an argument in favour of liberalisation, it is important to note that whenever clients in India have required advice on foreign law, Indian firms have always found a way to liaise with foreign firms to bridge the hiatus on a reciprocal basis. A symbiotic system of co-existence that has succeeded in meeting every need of a client has always been in place. This system has worked well for decades and there is no reason why it will not work in the future. If the credentials of Indian firms in adequately servicing their clients in every area of law and every aspect of their transactions are in doubt, one can look at the fact that the offshoring of legal work to India is burgeoning, and this bears sterling testimony to the capabilities of Indian firms. There is an inconsistency in the government’s argument.

If the liberalisation of the legal service sector is unavoidable, it should be done in a gradual and phased manner. Robust safeguards must be put in place to protect the interests of Indian firms at every stage and particularly during the period of transition. Foreign firms should be permitted to engage in the non-contentious practice of foreign law alone and should not be permitted to hire local lawyers. The device of surrogate firms must be carefully monitored and prevented. Foreign law firms should also be subject to the same regulatory regime as Indian law firms and the Bar Council should wield the same control on them as on Indian firms. The law ministry’s proposal to regulate foreign lawyers directly rather than through the Bar Council is conceptually unsound. How can there be two systems? There can only be one.

A similar gradual process of liberalisation has been followed in Japan, which took 20 years to completely liberalise its legal service sector. China is following suit in a similar manner and so is Korea. In fact, English firms had protested loudly when the Americans entered London. Why do they sing a different tune when they go abroad themselves? Most of the states in the US permit foreign lawyers to practise only on the most stringent conditions still. In the light of this global experience, even if liberalisation is a necessary evil, there is no need to rush the process without full consideration. Only India seems to be rushing ahead without following due process. Why?

In conclusion, the liberalisation of the legal service sector is undesirable at this point in time. The law ministry’s proposal in its current form cannot be accepted. Moreover, there are issues of process and national interest to be taken into consideration. There is no pressing need to liberalise the sector. Who except the foreign firms have asked for this? No matter what course adopted for liberalisation, the fact that a flourishing Indian legal profession is crucial to the economic, social and political well-being of the country should not be forgotten. The interests of Indian law firms should not be compromised. The vision of the profession must necessarily include independent Indian firms as well and the conditions to enable it must first be created. But that requires a lot more vision and empathy for the Indian bar.

49 Comments »

  1. The protectionist arguments put forward by Shroff are the same, failed arguments that others use to preserve their rent-seeking fiefdoms, be it in India or elsewhere. What is interesting is that his article also asks the Indian government to make several major changes in Indian laws affecting the legal profession in order to strengthen firms like his own, boosting their market power or bargaining power against foreign firms. Strictly speaking, Shroff does not want to completely close the door to foreign firms. He knows they will enter one day, just as Rahul Bajaj knew he would eventually face foreign competition when he sought protectionism. The question is whether the government actually implements some changes that could strengthen Indian firms and then quickly opens the legal sector to foreigners. That would give time and resources to firms such as Shroff’s to either get stronger to compete with foreigners or get attractive enough to be bought by a foreign firm.
    If war is too important to be left to the Generals, ecoonmic liberalization is too important to be left to the private sector. It requires reformers in the government to work with elements of the private sector to overcome objections from private sector firms like Shroff’s to open the sector.

    Comment by Blue Sky — February 16, 2008 @ 10:53 pm

  2. All politics is local said Tip O’Neil former speaker of the US representatives – that and NIMBY, among others, guide protectionist sentiment. Except for commies who beat all else for sheer cussedness, generally industries,segments of the market always react favorably to opportunities except when it impinges or even appears to on their business. Shroff is no different – it was alright when he raked it in but when he has to compete he reacts a like a woman scorned. Combating it does not necessarily require a government-private partnership. When India’s private sector encounters better quality law firms over the course of their foreign forays, they will demand it even if only incrementally. Shroff’s cocooned days are numbered regardless of his screed.

    Comment by Vijay — February 17, 2008 @ 12:53 am

  3. Thanks for posting that reference to Bastiat. It was hilarious! It should be made required reading for Indian politicians and bureaucrats. While laissez-faire competition has its drawbacks, there is no policy which is going to be accepted enthusiastically by all sections of society in a democracy. I think one way around the concerns of Shroff and his ilk would be to start off with encouraging joint-ventures between Indian and foreign law firms. This way, the rigor and analytical skills of foreign law firms could be combined with the local knowledge offered by Indian law firms. This would also allow Indian law firms to upgrade their offerings, train and recruit staff appropriately, and put in place policies and connections that would enable them to withstand the deeper pockets and breadth of experience that foreign law firms may possess. A firm deadline must be set, say a period of 5 years, after which, foreign law firms would be able to open up their own practices in India without a local partner.

    Incidentally, I am appalled at some of the writing in financial magazines like EconomicTimes (http://www.economictimes.com). Proof-reading seems to be totally absent. Grammatical mistakes and cliches are common, and strange, disjoint, sentences seem to be liberally sprinkled throughout their columns. I wonder if anyone else has noticed this. I now have come to believe those stories about acute talent shortages in many sectors of the Indian economy. India needs a major emphasis on quality across all sectors, or it will be doomed in the globally competitive landscape eventually.

    Comment by Observer — February 17, 2008 @ 10:50 am

  4. @Observer

    Apropos your point re the quality of writing in India. Here’s a comment of mine on the SAJA Forum about the outsourcing of “journalism” to India ( http://www.sajaforum.org/2007/05/outsourcing_new.html )

    Data point from personal experience: I’ve started two separate companies in the outsourcing space (a Knowldge Process Outsourcing firm, and now a Mortgage Process Outsourcing company), and interviewed/ met/ evaluated thousands of professionals in India. In general, the quality of writing in India is abysmal, and rigorous analysis conspicuous by its absence. There may be exceptions, but they’re few and far in between.

    For anyone to create a business that depends on high-quality writing AND to scale it up is near-impossible.

    IMHO, all this noise about outsourcing is mostly hype and a case of much ado about nothing.

    Case in point: compare almost any major newspaper or magazine in India with their American counterparts :-)

    Comment by Prashant — February 17, 2008 @ 9:26 pm

  5. I have had some limited dealings with AM & Co. and my impression is that Amarchand Mangaldas are very good at what they do. From what I have seen they have some very fine legal talent and offer very good professional advice.

    Therefore it puzzles me that Cyril Shroff should use such weak arguments that are poorly presented to ward off foreign law firms. The entry of foreign law firms might result in some competition for clients/ business, but given the way the market is growing I will be surprised if this impacts AM materially. One definite impact could be the increased competition for talent. While we are seeing a huge growth in law schools that are now drawing in students, we need much more talent than there is a supply of.

    Cyril Shroff is on solid ground though where his objections stem from regulatory barriers to scale and organization. Removal of these barriers, permitting LLPs, improvement in regulation are all valid measures that the Govt. can and should take regardless of the entry of foreign law firms. He will need to explain “other national interests or public interest” adequately though if he is to persuade decision makers to AM’s point of view.

    Comment by little Ram — February 18, 2008 @ 10:31 am

  6. “For instance, take this piece of bombast, “the law ministry’s proposal in its current form cannot be accepted”. Ummm… this proposal cannot be accepted by whom, exactly? Not to be too snarky but the mushy, vague pabulum which characterizes the entire article would fit well here.”

    Pabulum? lol! Maybe you should take a look at the blogposts of your fellow bloggers and perhaps your own before you accuse others of bombast.

    So would an Indian lawyer be allowed to practice in the US? Would Indian law firms be allowed to practice in the US or UK? Would Indian lawyers get visas very easily to work in the US, UK, Australia etc? Would they get the same rights at work as the fellow workers in these countries?

    Why is trade in labour not liberalized? Just like agriculture there are protectionist policies applied for labour throughout the Western world. Try working as a doctor in these countries with a medical degree from India.

    Mercantilism is popular because mercantilism works. China and before that Japan, Taiwan and Korea have effectively used various kinds of protectionist policies to build up their industries and skills. Even today financial firms cannot operate on their own in China. China has made it clear that they want to build up skills locally rather than import it and become dependent on foreigners. Even today it is impossible for foreign professional and financial firms to have a deep presence in Japan and the tiger economies of South Korea and Taiwan.

    I would advice following success stories rather than failures (read as Latin America.) The Washington Consensus policies advocated in this blogpost are completely discredit.

    Today was the day when the UK nationalized Northern Rock following what the Southeast Asian countries wanted to do during the Asian crisis (but mostly were not allowed to do.) Today was the day when the policies that Washington Consensus were given a complete burial. R.I.P.

    Comment by HmmBut — February 19, 2008 @ 5:29 am

  7. @HmmBut

    What is best for clients in India? Will the entry of foreign law firms improve their lot — quality of service vis-a-vis price?

    Or what about lawyers and prospective law students?

    What exactly does the National Rock example have to do with the points I made? Or the rest of your sweeping comment, for that matter

    BTW, the US does have barriers to the free entry of labor but it’s far more open than any other country on earth — I present as evidence the entire Indian diaspora.

    Comment by Prashant — February 19, 2008 @ 9:25 am

  8. US has preferential entry of labour not free entry of labour. It is an example of preferential trade not free trade. The US allows labour entry in those areas where the US government feels there is a deficiency of skills and the labour is brought in a very highly restricted manner which puts the worker at some disadvantage (with the advantage being that of making more money than in home country.) The entire Indian diaspora is an example of the large Indian population which faces less visa restrictions than the Chinese and are more interested in going abroad than more scarcely populated/more prosperous countries abroad that rarely offer the skills needed by western countries (technical skills not people skills.)

    The best for clients in the long run are local professionals. America is already seeing the effects of hollowing out of skilled manufacturing labour and now Hi-Tech labour. Real wages have been diminishing for the past 6 to 8 years. This was masked by increasing debt, some of which was created through fraud. Now that everyone is neck-deep in debt, the consumer economy is on its knees. Nobody is buying anything that the “clients” make. Everyone is losing out. The biggest loss is outsourcing has been that of important skills. Many corporations are finding that they are totally dependent on outside labour for key things and are having to pay a high price for it.

    We have to build up skills in our own country. Against the advice of people like Milton Friedman and the other ideologues, Nehru set up and promoted technical higher education institutions rather than only investing in primary education (as is the advice of structural adjustment from the IMF and the World Bank.) We are reaping the benefits of that investment now. We have always treated education in law, economics and commerce like they were less important. It shows in the poor quality in these areas in India.

    Lastly, I have no problem with foreign professional firms operating in India as long as they employ Indian-educated lawyers, accountants, doctors etc. It would be the same if an Indian firm tried to operate in the US or Europe. This way there will be transfer of skills and best practices and the foreign professional firms can make money. Without complete reciprocation, allowing foreign professionals to work in India will be losing situation for a country that is already on the knife’s edge when it comes to employment situation.

    PS: I make sweeping comments because all these factors are linked and I don’t think they can be understood in isolation.

    Comment by HmmBut — February 19, 2008 @ 4:57 pm

  9. I would suggest a more careful read of the situation. The model proposed for the legal fraternity would be similar to that of the major consulting firms and advisory firms already in India, like McKinsey for example. They were instrumental in getting the govt to see in 1998 that following a prescribed set of policies for the IT industry would lead to a $55 billion industry by 2008. This prediction has largely come true.

    We desperately need international law firms here who can share technology, analytical methods, and intellectual property. We are not talking about importing international lawyers. There is a big difference. McKinsey’s office in Delhi is not filled with Americans, it is mostly filled with Indians who are able to tap the expertise in the head office and provide quality services to Indian industry and govt here in India. Also, increasingly Indian companies are globalizing, and they need the best law firms to succeed. Else, it could affect the prospects of the Indian companies and their employees. A startup firm I know is desperately short of advice on global IP regulations, but they suspect they are getting poor advice here. If a few European/US law firms were to have offices here, it would be great. Till now Indian policy has been to totally focus on protecting inefficient Indian producers, and their unions. It is now the time to open up things and finally bring some relief to the the tired, poor, beaten-down, long-suffering Indian consumers. I repeat, Indian consumers in India. Not Indians in USA/UK/Europe etc.

    Comment by Observer — February 19, 2008 @ 10:00 pm

  10. @Hmmbut

    Lastly, I have no problem with foreign professional firms operating in India as long as they employ Indian-educated lawyers, accountants, doctors etc.

    What makes you think that the foreign law firms will NOT be staffed with mostly Indian professionals? Do you know the compensation for lawyers in the US/ UK? Add the expat costs and you’ll discover that the foreign law firms will look to hire local as much as possible. As Observer has pointed out… the model here is McKinsey/ Bain/ BCG.

    Against the advice of people like Milton Friedman and the other ideologues, Nehru set up and promoted technical higher education institutions rather than only investing in primary education (as is the advice of structural adjustment from the IMF and the World Bank.) We are reaping the benefits of that investment now.

    We appreciate the time you’ve taken to raise your point of view.

    You say that all these factors are linked and I don’t think they can be understood in isolation.

    What exactly does this tautology have to do, in the context of my post or your comments? Not sure if I get it. However, here’s an example of not looking at issues in isolation.

    – Can you tell me how much is the “benefit from Nehru’s investment in higher education”, which you seem so proud of? Weigh that against the opportunity cost, as outlined here http://www.deeshaa.org/who-actually-paid-for-my-education/

    Comment by Prashant — February 25, 2008 @ 1:20 pm

  11. The better stance on liberalization of foreign investment would have dwelt with the political repercussions of inequality. Legal services is not something that suddenly the poor won’t be able to access or afford because of the entry of foreign multinationals. It’s just a knee-jerk reaction by some. But the overall political risk of inequality (and perception of inequality) on part of the voting public is substantial, and as election nears, I don’t think the government will accelerate liberalization any further.

    About foreign firms staffing their ranks with locals, most firms do it, but many ensure that the decision-making power of local employees remains limited. This can cause problems, since firms that keep most senior management under foreign control may fail to embed well into the local markets, but it depends. Toyota, for instance, has just decided globally to increase the authority of local managers to cope with fast-changing market situations.

    Comment by Jalal Alamgir — February 26, 2008 @ 4:22 am

  12. The deesha link that you posted is exactly the discredited IMF/World Bank structural adjustment advice that I was talking about. It has been a failure wherever it was applied. Every country needs a certain level of domestic skill-base to be self-sustaining. Malaysia has to import Indian engineers and can’t seem to catch up with Indian higher educational levels. It is dependent on the outside world to run its high technology industries. Once they were making low skill goods and when the time came to move up, they hit a wall.

    Of course, the financing of education is unfair but so are SEZs and even capitalism. From a strategic point of view investment in higher education ensured that India has some high technology means to defend itself and can sustain industries ranging from low skill ones to high skill ones. Thus it is less exposed to the risk of MNCs moving to next low-cost location leaving the primary-school educated workers in the lurch.

    Some people lost and some people gained. In hindsight it was a good move if we compare to the tiger economies and even China. The fact that low-skill industries haven’t spread so much in India has to do with other problems (like poor infrastructure, labour laws etc.)

    Why is this very “economic” blog gloating about India’s space research achievements? We could have built more primary schools with that. Right? More primary schools are meant to churn out low-skilled monkeys that can work for low wages to fatten the wallet of industrialists and MNCs. It also ensures that there is no well-educated intellectual class that can actively engage in the larger issues of the society (like you and I are doing right now.) That means even less resistance to bad practices from investors.

    Foreign lawyers shouldn’t work in India at all unless there is full reciprocity. There shouldn’t be a situation where trained Indian lawyers become paralegals for foreign lawyers who fly in and out without sharing any knowledge. In that case it is a waste to allow these firms. You certainly did not make this clear in your blogpost. In fact, you talk about foreign lawyers practicing in India. So don’t backtrack now.

    Comment by HmmBut — February 26, 2008 @ 5:31 am

  13. @ HmmBut says
    More primary schools are meant to churn out low-skilled monkeys that can work for low wages to fatten the wallet of industrialists and MNCs.

    Whew! I’m speechless…

    Thank you for your wonderfully insightful comments, my dear HmmBut.

    At this point, this low-skilled monkey really has no interest in engaging in any further debate with you, which should make you happy — you won’t have to mix with a “low-skilled monkey” like me.

    Comment by Prashant — February 26, 2008 @ 6:45 am

  14. lol! Don’t cherry-pick my quotes and misinterpret them. If you substitute institutions of higher learning with more primary schools, you will end up with a mass of semi-educated people whose education is of no vocational use and who are incapable of engaging foreign advisers/carpetbaggers at an intellectual level to secure their own interests. This has been the lesson in Latin America and Africa. In contrast, Singapore, Japan and even Korea had an modern educated class to spearhead their economic development. Making people pay exorbitant fees for higher education would simply put it out the reach of the middle class and the poor and the learning experience would be much worse. This can be seen in the US where student aid and state subsidies for education have decreased over the years with many people opting not to study because they don’t have the money and others wasting huge amounts of time serving burgers and fries to pay for college.

    From an elitist point of view it would have been good if there were no subsidies that helped to pull up the middle class and the poor. They would have been put in their place.

    It was interesting conversation.

    Comment by HmmBut — February 26, 2008 @ 5:46 pm

  15. @ HmmBut says Don’t cherry-pick my quotes and misinterpret them.

    I think your statements speak for themselves. Good luck and good bye

    Comment by Prashant — February 26, 2008 @ 7:19 pm

  16. I guess some of what I said angered you. They are told for the shock but are in good faith. If not for those subsidies that educated you and me, we wouldn’t be having this conversation on the internet.

    I wonder if dissent is accepted on this website. I hope so.

    Comment by HmmBut — February 27, 2008 @ 5:26 am

  17. Hmmbut:

    There is enough evidence of dissenting views and comments on this website – so, you can rest assured on that count.

    However, you need to back up your (provocative) views with a little more evidence in order to get other readers to take your views seriously – the last time I checked:
    – Malaysia, despite being populated by low-skilled monkeys, who did not have get any subsidized or quality higher education, had a per capita income 7x of India
    – The US had a significantly higher proportion of high-school graduates going to college than India, even if some of them had to flip burgers to do it
    – When the Indian government raised IIT/IIM fees in the 90s by a factor of 50-100x (still probably a third of the cost), there was no sudden change in the class composition of these institutions
    – We lived in a (relatively) free country – there was no “central diktat” forcing Indian lawyers or MBAs or English graduates to work as paralegals or consulting drones or call-center reps for foreign law, consulting or call-center firms – the people who did any of these, chose to do this, of their own free will

    I don’t think you even begin to make the case that investing in higher education has somehow been better for India – many economists (including left-leaning JNU types) have done social cost-benefit analysis studies of the value of higher education and of primary education – you would do well to peruse some of these. The results uniformly show that primary education has huge positive externalities, while the benefits of higher education are largely captured by the individual concerned – ergo, there is a case for the former to be publicly funded, but little case for the latter, especially so in a resource-constrained economy.

    Comment by Arjun — February 27, 2008 @ 7:48 am

  18. Malaysia can’t send up a satellite without depending on some western country. Malaysia has a severe shortage of skilled technical labour and has to import it from India. It has hit a wall (as I said above.) It is no longer the low-low cost producer. China took over that part. Also, Malaysia is a small country with three-tiered citizen structure and severe restrictions on labour and civil liberties which makes it easier to situate low-cost low-skill industries. I will be honest and say that state-directed export capitalism has been the most successful in quickly bringing people out of poverty. This has been so in smaller countries. The experience of China will tell us if this works for a big one and I think the answer is positive. Now would losing our civil liberties be worth it? I guess we could have a cost-benefit analysis or talk about opportunity cost of poor people not enjoying the goods of prosperity and better infrastructure. If I was poor I guess I would rather have prosperity than a democracy that is dominated by the rich and the middle class.

    The US is a richer economy and it still can afford high cost education as compared to India where a vast majority live in sub-Saharan conditions. I was providing an example of how things are slowly becoming harder in the US. Compared to the 60s and even the 70s when education was subsidized to a large extent, the current fee-paying system has brought down the quality of experience and even research because of poor state funding. Of course, the poor funding is the result of many economic political factors but the end result of making the middle class and the poor pay huge fees has been a decline in accessibility to good quality higher education. You can roll out stats but it is the truth that from this year Harvard and following its lead many other rich private colleges have decided to heavily discount fees & provide financial aid to middle class students (not just economically poor students) because these colleges believe that many potential students are not even applying to them because of their high fees.
    IIT/IIMs already have a class bias. Only those who can apply the capital (whether from their own pockets or with loans) can afford the high-cost coaching classes to get into these institutions. The rural student doesn’t get into these places anyway (definitely not in the IIMs which even have a weird bias towards the English language.) Also, these fee-hikes were instituted in the 90s by when a significant educated middle class had already been created with subsidized higher education, significant public sector investment, reservation policy etc. I don’t think people would have afforded high cost education in the 50s and the 60s when inequality was much more stark in India. We did not become a severely unequal society like Brazil, Venezuela etc. Sure they have a higher per capita income than us but they have worse inequality and extreme concentration of power in the hands of the elite (thankfully ebbing now.)

    The question is less about whether lawyers work as paralegal and more about what these foreign law firms bring to the table. If it is simply competition because of their easier access to capital and large invested base then we don’t need it as we can produce the same result by giving easier capital access to groups in India. If they are going to bring in their considerable expertise and transfer them to their Indian counterparts while they acquire market share and produce profits, then its win-win for both sides. But if they are going to come in and work here without creating jobs for people in India but rather closing such job opportunities then it is bad for a country that already has a significant unemployment problem. India is free for Indians, not for foreigners to come and work freely. No western country allows free movement of labour into their country. We don’t owe it to them to provide free access either. Reciprocity is the key here and it is not always available.

    Yes, it is something on which IMF/World Bank and Leftists agree that primary education is more important in poor countries though the former believes in user-fees a lot more than the latter. There are significant externalities in promoting primary education but there are significant strategic positives with respect to promoting higher education. Of course, the fact that India has invested a lot more than needed in higher education has more to do with the power of the ever-demanding middle class vis-a-vis the poor but it has been positive for the country. A few elite institutions and a vast majority of primary school educated people would have made the country look like Brazil with a small but rich and powerful upper class living in first world conditions and the rest, educated enough to read a bit and write their names,living in shanty towns and as indentured labourers in vast estates.

    Most bloggers here hail from middle class families that benefited significantly from subsidies, nationalization and reservation policies (directly or indirectly.) This is in contrast to the kind of people that I encounter from Latin America and Africa. Almost everyone who is able to do some advocacy from these countries hail from very rich families and they admit that their home countries have a small elite that monopolizes economy and politics.

    PS: I don’t see much of dissent here. The free-market biased posters do western-style advocacy. There are some irregular Indian posters who pop up and feel a little unsure about all the euphoria about the economy but are not able to express themselves well (including that poster who said that employees of a large Indian private bank ask for favours to get work done which has led to worry about a new banking crisis in India in the near future.) Then there are those attacks on China’s development which read like poor quality plagiarisms of western ranting.

    Comment by HmmBut — February 27, 2008 @ 11:36 am

  19. I think the views of Indians living and working in India should take precedence over those earning their living in other countries. I have frequently found that Indians living abroad can be split into two camps, one the uber-patriot, who is intent on “protecting” India and keeping India “protected”, while the other has a “dont-care-I-hate-India” attitude. The former is probably compelled by a sense of nostalgia, and a sense of alienation in the current society he/she lives in. I feel the former can actually create more harm for Indians living in India than the latter. People living in India today are not ignorant or simple-minded anymore. They are desperate for a better quality of life. The path of “self-reliance” is a path which had left us with the Ambassador and Premier Padmini until recently. Indians deserve to have international quality goods and services, and it is wrong to deny them this. To suggest otherwise would be to imply that Indians are inferior, which is highly objectionable.

    Comment by Observer — February 28, 2008 @ 11:29 am

  20. I want to stop posting on this comment section. I will try to limit myself.

    I am an Indian living abroad and I have no interest in calling for special protection for India neither am I a uber-patriot. I don’t like nationalism except for the its use in keeping out brutal occupiers (which we had only 60 years ago which is not that long.) I do not think the interests of the rich, the middle class and the poor are aligned or any single policy can satisfy everyone. Thus I cannot think of anything that ties are Indians together. Nationalism and patriotism are used to keep down poor people.

    But I am also happy that we were not split into a 100 nations by foreign interlopers and I see that as an achievement of our political leaders, civilian bureaucracy, the military and of course the people at large. We are definitely more united than we were in 1947 when so many princes wanted to split away and there was indeed a huge partition that led to the biggest movement of people ever in recorded history (and it was not a simply trip on a train but full of riots and ghost trains carrying dead bodies in every passenger compartment.)

    This is not a security blog but we are not going to be a strong economy if we subsume ourselves to others. Yugoslavia was broken apart and now Serbia too. Indonesia was broken, Russia has internal problems that will be exploited. What makes you think that India will be treated differently? Are we special? If we have ambitions for Great Power status we will also be split up. Of course, I don’t think we should hanker after Great Power status in the first place.

    Economic policies like land reforms, investment in higher technical education, state-directed export policies etc are not “protectionist” but rather success stories from Japan, Taiwan, Korea and China, that we should emulate. The World Bank/IMF structural reforms programme has been disastrous in every country it has been imposed on. They have led to riots and massive political instabilities. You can look up examples in Latin America and Africa. These two institutions are so reviled now that nobody wants to borrow from them and many African and Latin American countries prefer China which loans out capital at better terms without too many strings attached. So we have to emulate success stories not ideological fantasies.

    Even Western countries are not following the advice they gave out to Asian countries during the Asian crisis in the 90s. The UK nationalized an ailing bank. In contrast, Asian countries were told to sell their financial institutions to foreign financial firms in the 90s crisis. Today the Europe and North America ask for protectionism against Sovereign Wealth Funds and block purchase of their corporations on basis of “security reasons.” Why can’t we do the same? Are we special and immune to all threats?

    I advise the same to Americans. They do not need to ship out every job to satisfy the profit motives of the rich. This is leading to disaster in the US. Wages are now less than last years and have been stagnating for years while CEO salaries have skyrocketed and equity gains have been above par. Along with that, a big part of the much celebrated ‘productivity gain’ in the US is actually gain made in India and China which was counted for the US. I would also advise the same to Russia, Indonesia, China or any country. Don’t believe in the ideological garbage of free-marketers. It has not worked and won’t work. As Joseph Stiglitz said in his book a lot of these policies have no backing from research or past experiences. They simply repeated like a mantra.

    Comment by HmmBut — February 28, 2008 @ 6:05 pm

  21. And if you don’t believe that economic policies and advice are not part of the geopolitical game under another name then find out the famous economist who said the following during the Asian crisis:
    “Korea is now owned & operated by our Treasury – that’s the positive side [of this crisis].”

    Comment by HmmBut — February 28, 2008 @ 6:11 pm

  22. Japan a success story? The same Japan which has been mired in stagflation since the late 1980′s? If the US goes into a severe recession, the theories of “decoupling” will be tested, to be sure. Latin America and Africa have cultural problems, mostly a lack of democratic institutions which are largely responsible for their misery. Economic turmoil is only a side effect of all this political instability. Anyway, the issue here is, who is going to be benefited by protection of certain segments of the economy? In this specific example, legal services. There are many Indian companies who would be glad to have foreign law firms in India which have expertise in emerging areas of globalization, IP protection, risk management, and so on. These are areas in which either the number of Indian firms is inadequate, or the requisite knowledge and processes are not present. In general, one has to balance the needs of the producers versus the consumers. Dogmatic views about free-markets and communism need to be abandoned in terms of practical recommendations.

    I have not seen a single mention here about the Indian consumer. It is a fact that Indian consumers get some of the worst quality goods and services for the prices they pay. It is hypocritical for an Indian sitting in USA on one hand to enjoy superior goods and services, while on the other hand recommend protectionist policies for Indian producers which continue to subject Indian consumers in India to a shoddy experience. No wonder more and more Indians want to emigrate. It is this question which needs to be answered, and has always been sidestepped in favor of some speeches about IMF/Latin America/ Africa etc. No debate can be complete without addressing the issue of the consumer side of the equation. Suggestions? Recommendations?

    Comment by Observer — February 28, 2008 @ 9:07 pm

  23. @ Observer

    I have not seen a single mention here about the Indian consumer. It is a fact that Indian consumers get some of the worst quality goods and services for the prices they pay.

    I agree with you whole-heartedly. As I point out in my post above, Mr Shroff barely even acknowledges their existence in his essay, which is the crux of the problem.

    I’ve interacted with several law firms both in the US (NYC, DC, Pittsburgh, LA) and in India (small and large, among them many of the well known names). I’d liken it to the car market in America vs India in 1980. At that time, the American consumer had several choices in terms of price points, quality standards and other features. According to one estimate, there were over 900 options. While there were a few duds, there were still a lot of great cars. The Indian consumer could get an Ambassador or a Premier Padmini. And even worse, for the absolute same price one paid in India for these crappy cars, the US offered some very decent cars.

    From what I’ve seen, the large law firms in India (among them a firm that Mr Shroff is very familiar with) charge the same rates as the US firms I’ve used, and their service and level of expertise is nowhere comparable. These Indian firms have a cushy protected oligopoly going — hence they treat clients with absolute disdain.

    On a broader basis, here’s my two cents on retail prices in India — http://indianeconomy.org/2007/12/30/indias-retail-revolution-question-2/

    It is hypocritical for an Indian sitting in USA on one hand to enjoy superior goods and services, while on the other hand recommend protectionist policies for Indian producers which continue to subject Indian consumers in India to a shoddy experience.

    I presume you’re referring to HmmBut? Hypocrisy is too kind a word. IMHO, I’ve given up debating with someone that trouts out twaddle like this, and that too, under the cloak of anonymity.

    http://indianeconomy.org/2008/02/16/liberalization-its-good-for-them-but-not-us/#comment-264576

    Comment by Prashant — February 28, 2008 @ 10:14 pm

  24. As I said, I advice the same to the US and any other country. Consume less, save more. Stop destroying the environment. The days of low-cost capital obtained on credit are gone. There is a massive credit crunch that has put the financial system in the US and Europe under severe strain. The massive debt-fuelled asset inflation that led stagflagation in Japan is putting the US under the danger of the same. Wages have been flat over many years and have gone down this year while inflation is up in a big way. Inflation is all that people are talking about in grocery stores and on television.

    All this came about because of mindless emphasis on “consumers.” Consumerism was promoted a lot. Consumption became 70% of the US economy. In order to keep the consumerist train going, the flat and decreasing wages were compensated with easy credit. Now everyone is deep in debt and nobody has anything money to spend.

    China saves a massive amount of capital and puts it back into investment while we in India already have a huge debt-to-GDP ratio. The only good news is that this debt is mostly domestic. We don’t have any capital to “consume” and send overseas. This should be the saving phase of our economic growth. Consumption must be optimal not excellent because we cannot afford it.

    As for me enjoying all the consumerist fantasies, I have a strict belief that consumerism leads to waste and affects the environment in a very bad way. When we buy something on credit we are posting borrowing what belongs to the future generation with the promise of paying the bill later in paper money. If I use up fuel now and pay 20 years later in paper cash, it won’t magically produce a new amount of fuel. For non-renewable resources (petroleum, iron etc) buying on credit is simply overconsuming beyond our current means and we are not deserving of that. I rarely spend my money on buying anything and I make sure I use whatever I bought for the maximum amount of time. To put it simply, I live frugally. I have heard that this is case with people in China and even Japan (after 150 years of prosperity.)

    Consumerism has failed and it cannot be used as a driver of our economy especially when you take into consideration environment, energy security and general waste. Consumerism has failed America.

    Comment by HmmBut — February 29, 2008 @ 5:22 am

  25. I agree that there is less competition in professional services in India. This is the result of lack of capital and consolidation. Smaller law firms are not able to scale up with capital infusion. Also, Indian firms lack the full set of skills and knowledge that are key to excellent professional services. These should be developed internally and if need the knowledge and skill-transfer should be obtained. But allowing foreign lawyers to operate in India without any reciprocity should not be accepted. Rich countries have repeatedly refused to allow free trade in labour (one of the cornerstones of free trade) through the WTO. We do not owe them anything. China has not opened up its financial and other services sector. Korea and Taiwan maintains strict barriers. Japan has always maintained different types of obstructions to foreign investment in financial and services sector.

    As a poor country, we must learn to live frugally, save and invest. We will have to accept poorer standards in hope for long term gains and this would good for the environment too. If high prices dissuade people from buying 5 shirts and they end up buying 2 shirts, it is not a tragic situation. It is life in a poor country. Now ordinary Americans are faced with the same quandary. They are deep in debt and prices of food items and fuel are skyrocketing like never before. So they are cutting back.

    We shouldn’t open our economy so much that we end up being “owned and operated” by outsiders. Open up once we are strong enough to stand up for ourselves. That’s what Japan, Taiwan and Korea did and China is doing now. The US did not protect intellectual property rights for a long time until it became a major economy. If we gain skills and knowledge from opening up to foreign law firms, then its good. But if it is a matter of the ability of these foreign firms to scale up because of their large capital base then we should look for some other solution.

    PS: Japan is a prosperous country. Japanese banks were recently asked to “invest” (or rather send money) in debt-ridden American financial institutions to save them from the financial crisis. Japanese bank executives publicly complained about being forced to invest this way and said that they never got such preferential treatment when they faced a crisis in the 90s. Anyway the plan fell through. Moral of the story is that Japan is still a very rich country, after all it is the second largest economy in the world.

    Comment by HmmBut — February 29, 2008 @ 5:31 am

  26. “From an elitist point of view it would have been good if there were no subsidies that helped to pull up the middle class and the poor. They would have been put in their place.”

    I think this was what riled everyone the most. But its true. If not for the heavy subsidies and egalitarian policies of the government in favour of the middle class, most people would have not achieved current levels of education or wealth. Most people who blog wouldn’t be doing anything of that sort. There would have been a few elite institutions where you have to pay exorbitant fees and most people would have got a high school education and went on to work in manufacturing industries. The rich would send their children to the elite institutions and abroad. This has been the story in Latin America, Africa and even in the US (though public investment in education mitigated the situation to a large extent, the elite institutions were off-hands to most people for a long time.) Instead of being a software power, India would have been competing head on with China in manufacturing.

    Under British India, the rich in India used to pay the equivalent of Rs 5 lakh a year to study in intermediate college (based on some historical fees and current commodity prices.) I am sure there are more people in India today who can pay the “full cost pricing” but at the turn of independence there were very very few such people. The government effectively redistributed wealth (and knowledge) by subsidizing many things and instituting egalitarian policies. As for student loans, aren’t such low interest loans a form of subsidy? Why burden a student with loans and make him think of a career from the get go to pay if off? Why should the ability to “explore oneself” be limited to the debt-less children of the rich? Would someone like Bill Gates have went off and built a successful corporation if he was saddled with loans and the need for a job to repay it?

    Most of you are beneficiaries of the benevolence of a semi-socialist government. There is no running away from that. It has been the most inconvenient for the rich elites.

    For an American perspective, read the following:
    http://www.huffingtonpost.com/jamie-johnson/the-one-percent_b_87459.html

    Observer is right that these posts are sounding like speeches and brevity is not my best trait. I have tried to put out as much information as possible because I think it could make a difference and I want to be sincere about it. I am ending it here. You can throw mud on me. Here’s hoping for a great budget and more double digit growth rates.

    Comment by HmmBut — February 29, 2008 @ 5:59 am

  27. Am concerned abt the national security aspect on allowing in foreign law firms. Its similar to allowing FDI into media. They’ll push the foriegn POV coz the financiers call the tune. No?

    How would we know which interests they work for?

    What if tomorrow some of these foreign firms with foreign govt backing (say from the CCP in the PRC) tie-up with assorted NGOs, enviro-mentalists etc to further delay and bog down large projects? What if they start appealing to international courts from here about injustices meted out to asorted underprivilged groups (tribals, dalits, insurgents, separatists etc)?

    Don’t get me wrong. I’m all for individuals and groups demanding their constitutional rights but should foreign money be financing their voice? Recall the recent million-man march to Delhi to demand forest dweller rights openly financed by western NGOs.

    Maybe I’m totally off-topic here. Just my 2 cents.
    Ensoi.

    Comment by sudhir — February 29, 2008 @ 1:41 pm

  28. Missing from Shroff’s article (though not badly written) and this entire thread is any reference to the process of professional licensure. While no poster on this thread is a lawyer and hence can be forgiven for ignoring the issue, Shroff being should have talked about it. What does it mean to permit a “foreign law firm” to practice in India? Does it mean that X,Y &, Z LLP will hang out their shingle at an office in Upper Worli, staffing the office with lawyers admitted to the Indian bars, or does it mean that lawyers admitted to the bars of NY State, Ontario, Lincoln’s Inn, Paris etc., will begin to practice in the Indian courts. If it is simply an issue of the brand name, we have the example of foreign Accounting/Audit firms that have set up shop in India and are staffed by either England and Wales accountants/Scotland CAs or ICAI CAs. Of the three only accountants of the last category can conduct statutory audits in India. Accountants of the first two categories as a rule can apply and obtain a certificate of practice from the ICAI. The ICAI continues to issue COPs to Scottish and England/Wales CAs because many of the old firms in India (AFF, SBB, etc.) are owned almost exclusively by England/Wales qualified CAs, and will rarely if ever anoint an Indian CA as partner. The ICAI runs a very rigorous qualification program, arguably the world’s toughest program, and has till recently opposed the entry of foreign firms into India, but in a curious fashion. While some of the Indian qualified leadership of the ICAI has been working with the government and to a lesser extent with the England/Wales CAI about the possibility of reciprocity, the UK qualified leadership within the ICAI has opposed any form of reciprocity. Because reciprocity would diminish the value of the UK membership and open up the global practice to the Indian qualified CAs. The UK institutes on the other hand have dragged their feet for years on reciprocity because they know that were it granted Indian CAs would flood the UK market. But now with some very stringent restrictions in the offing in the UK, on hte jhiring of foreign professionals, reciprocity may not make much a difference. Indian professionals CA although they can obtain a COP in the UK may not be able to obtain a work visa in the UK.

    The US situation is far more complicated because professional charters/licenses are left to the states – in effect it is 50+ UKs with each state having its own licensing exam for the Bar and accounting institute. There are separate exams for circuit of the US Supreme Court, Federal Appellate jurisdictions, Tax Courts etc., even if they are located in the same State. Foreign qualified lawyers can take the bar exam in certain states directly or after an LLM degree. But the question is not licensing, it is whether an Indian lawyer who jumps thru all these hoops will get a visa to work in the US/UK. At present that is not an issue that is within the powers of the professional bodies in these countries but lies with the immigration authorities in hte respective countries. While there is some separation of powers between professional authority and the state in the US/UK, in India what is distressing is that the government seems to be making decisions without any reference to the professional bodies. When there is no interest in other countries (at best there is disinterest) over allowing foreign professionals to work and practice their professions with foreign qualifications, whence this unseemply haste in India? What are those great services that Indian firms cannot provide through their surrent correspondent arrangements to foreign clients in India? Cyril Shroff has a point for all the wrong resons. This is not simply a matter of LPG, which I am all in favor of as long as it is a two-way street. Professional licensure reciprocity is meaningless without immigration reciprocity. They are two separate issues and unless both are addressed no one is will benefit in India.

    Comment by kaangeya — February 29, 2008 @ 7:47 pm

  29. Continuing from the last post…

    The practice of legal advocacy in India is subject among otehr laws, primarily the Advocates Act (1961). The law (either that act or later case law) recgnises three types of legal services within the scope of advocacy – counselling, drafting, and pleading/representation/litigation. In the case of a couple of firms (one US and one UK) that started counselling Indian clients in 1998, the Bombay High Court ruled the practice as advicacy and ordered their practice discontinued as the firms concerned were acting in violation of the Advocates Act. Among other things the Act requires an Advocate in India to be an Indian citizen admitted to the State Bar (hence the Bar Council of India), reciprocity to be extended to foreign citizens only if their country permits Indian lawyers to practice there. Of course the Act leaves the matter of qualification to the Bar Council. Why would our government want to run foul of its own laws and make an ass of itself. Also I am not highly impressed with the foreign legal firms that they chose to slip under the radar of the Indian law to set up shop here. More importantly what is Cyril Shroff doing, he is a lawyer and should be quoting the law when it is on his side, not thumping the table!

    Comment by kaangeya — February 29, 2008 @ 11:48 pm

  30. Okay, we all agree that free markets and globalization are generally necessary, if not inevitable, BUT we have this little sector here – this very unique niche in our economy – where we need to be a little careful with this globalization phenomenon or else the following catastrophes await us.

    This intellectual reticence or, shall we say, a fear of being totally pregnant, has been evident on this blog many, many times.

    I am sincere when I ask this of the commenters who know economics. Should globalization and free trade be selective, and if so, what level of restraint is effective and what level self-defeating and even harmful?

    Maybe my question is too broad to be unanswerable, but anybody have any opinions? I am sure they will be better than mine.

    (I am an Indian living in the US since 1973.)

    Comment by Floridian — March 1, 2008 @ 4:39 am

  31. @Kaangeya
    You make pretty valid points. But, you seem to be worrying too much that foreign lawyers would swamp Indian legal space. Given Indian labor advantage I dont think that will happen. Also, given the very favorable environment for lawyers here in the US, (where the good ones are making millions suing Megacorp) I dont think people will run in horde to practice in countries like India. With this advantage the onus is on India to make the initiative in opening up. No one stands to gain from globalization more than India, and Indians seems to keep forgeting that. Gone are the days when West used to push us to open up. Now, the West has its own problems and globalization is slowly becoming a “bad word” here.

    With its strengths in finance, IT and management (see the demographics of any major international instituition in these fields), India should not worry about globalization. As others have pointed out most likely, the foreign firms would come here and hire Indians and in fact may eventually get submerged by the Indians (for example, look at the entire top brass of Citi). Just as how the coming of Microsoft, Citi, McKinsey and such brought great career opportunities for Indians in the respective fields, this would open new avenues for the lawyers. Indian corporations and individuals will greatly be benefited by added competition and professionalism, and the knowledge Xfer will make someday huge Indian corporations rise out. If history is an indicator, India lost in none of the fields it opened up (Telecom, Finance, IT, Auto, Pharama) and only in fields like Agriculture that have been closely guarded we have lost.

    So, its time Indians start to realize that no longer anybody will push India to globalize, as most other countries have something to lose given the unfavorable demographics. But, India has the least to lose in this game, and I hope this realization starts to dawn in. No longer it makes sense for us to be whining boys siting outside trade deals complaining something.

    @Sudhir,
    Do you think in 1.1 billion of our people there are no black sheeps? Going by your reasoning, how hard would it be for China (directly or indirectly) to pay up some Indian lawyers to do the same thing of disrupting India’s growth by malicious litigations.

    Comment by Balaji Viswanathan — March 1, 2008 @ 7:20 am

  32. Kaangeya: I identified one possible area where Indian law firms are not as knowledgeable or experienced. I think it might be wise to peruse all comments before admonishing others.

    On a more general note, I think there is an undue focus on reciprocity regarding this issue. That is beside the point. The issue is, will the entry of foreign law firms bring in some needed skills and technology that local clients can benefit from? India was not concerned about reciprocity when it decided to allow foreign pilots to fly aircraft in India. Also, it was not concerned about reciprocity when foreign consulting firms were allowed to set up shop here. I am sure one can find many similar examples. Was there a shortage of consultants in India before BCG came to India? Everyone here I am sure remembers MARG. Look at the quantum leap in professionalism, accuracy, comprehensiveness in research reports and market surveys and other areas after the entry of McKinseys, BCGs et al. Has India collapsed in the last 10 years because reciprocity was not followed? How about the security angle? Have all of India’s secrets been exposed?

    In a globally competitive world, one cannot be waiting for another 20 years for a fresh crop of trained people to emerge. A parallel process needs to be followed, simultaneously enhancing the local educational institutions and also exposing existing firms to external competition. The Indian government is not totally naive. I believe there is will at the top to reverse the calcification in the Indian economy which has led to a chalta-hai attitude and a natural tendency to form cartels and oligopolies in a major service area.

    Comment by Observer — March 1, 2008 @ 11:15 am

  33. I think some people are missing the point, and rambling about credit practices and Latin America. It makes me believe that maybe somebody took a trip down south to Mexico and had a bad experience with their credit card :-) The focus of the current debate is not on environmentalism, green earth, consumerism, Gaia, world peace, racism, war etc. It is related to the question, does the Indian consumer deserve quality services and goods or not? Being an Indian consumer, I fervently hope so. This has nothing to do with being frugal or consumerist. Consumerism may be punished, but not the consumer. This distinction seems to be lost on some people. Most Indian consumers are very frugal, and yet the goods and services they consume are of poor quality. I have listed numerous examples in my other posts. Unlike some others on here, I actually live in India (frugally I might add). Subsidized goods, like tap water, power, fixed telephone lines, petrol, diesel, rice, handlooms, education, etc are usually of the worst quality. Even if I consume less of these, (and thus escape the evil “consumerism” tag), I still get poor quality products and services. Who is looking out for me, the frugal Indian customer? I guess the answer is, definitely not those Indians living in developed countries, who would like to advise me to continue to pay more for subsidized goods and get inferior quality in return. Is it any wonder that more and more people want to emigrate? Then we all can also advise the remaining people in India to buck up and take one for the team :-)

    Comment by Observer — March 1, 2008 @ 11:40 am

  34. No problems with Mexico. Can’t think of any actually.

    kaangeya, excellent points. Most Indians (like the Chinese) are doing better than their earlier generation and so are extremely happy and positive about everything happening around them. This is also the case of most people who emigrate to western countries. Most of them are working way below their potential and have not risen to the level they deserve but they are doing far better than their own earlier generation could have imagined. This is alright as long as it is the case for the emigrants. Their new host country decides their fate to a large extent and they made a choice of going there. But it cannot be accepted that Indians living in their own country share the same fate where they are secondary to people with qualifications and professional licences from abroad. They will not treat us Indians and our qualifications with any respect. They won’t recognize us. But we are rushing in to embrace them and let them be our masters. For others the short-term gain in money, investment and consumer choice might be attractive but there are many of us who care about self-respect and long-term implications.

    One of the important points described by kaangeya is how the old firms from the England rarely if ever make Indian-qualified CAs partners. I find this disturbing. People can work for the firm but partners own the firm. If the Indian scene is dominated by foreign firms that look down upon Indian qualifications then we have a huge problem. Many decades ago, the Indian government stopped recognizing foreign professional certifications (including the famous FRCS) because of the lack of reciprocal recognition and the way people were hankering after foreign qualifications that were of a lower level and poorer quality than Indian degrees.

    Consumers are not a privileged class whose needs must be met at the cost of others. This something being realized in the US now. To satisfy the consumer, the cost of products were brought down by shipping jobs abroad. The “consumers” were left with fewer jobs and had to take up poorly paying jobs. To keep the consumerist juggernaut going, the “consumers” were provided easy credit. Now they are tapped out and neck-deep in debt.

    We should institute policies according to what gain they would provide us. We should not do things out of foreign pressure or ideological hangups. Globalization is not inevitable. If there is a strong opposition in rich countries, they will roll it back with massive regulations. In the end the economic policies of every country in the world is subject to its social conditions. Any kind of social distress or unrest would lead to a rollback. So India should also make sure that it secures everyone’s interests and gives a piece of the pie to every class when it decides its policies.

    Comment by HmmBut — March 1, 2008 @ 7:15 pm

  35. I asked the Balaji if he has a reading comprehension problem, and the moderator delted the comment. Now I am asking hte moderator, do you have a reading comprehension problem?

    So what if foreign pilots were allowed to fly in India without reciprocity extended by their respective home countries to Indian pilots? Does that mean we must do the same in the case of lawyers and accountants? What logical principle do you apply to contend pilots=lawyers; advocacy=flying, airlines=law firms. Foreign pilots have been allowed to fly inside India because already many of them even if not flying within India fly over India or land in and fly out. There is a shortage of qualified Indian pilots, the airline business is seeing explosive growth, and so on. None of these exist in the case of law firms, even conceding the equivalences you assume. Are you comparing MARG and market research firm and BCG a strat consulting firm? Do you know what you are talking about? Management consulting is not a chartered/certified profession. And in case Indian law firms lack skills in certain areas of practice, there are many ways in which they can acquire that knowledge, as they already do, taking an LLM in the UK/USA; working on secondment in a foreign law firm etc., Reciprocity is a foundational principle of trade, in which the exchange of money is only a superficial indicator of equivalence, and rarely captures the value of goods exchanged. Selling our markets cheaply isn’t simply wrong but plain stupid.

    Comment by kaangeya — March 1, 2008 @ 7:30 pm

  36. kaangeya, good point in identifying shortage of pilots in a ballooning airline industry as the real reason for allowing foreign pilots. I just didn’t want to be seen as arguing with everyone on this comment section.

    I do think that if foreign law firms come in and like in the US are made to register/incorporate in India along with explicit regulations making them managed from within India and allowing foreign professionals to work strictly on the basis of reciprocity, then it will be good for Indian professionals. They would have more job opportunities and opportunities for career growth. Also, they would have access to the shared knowledge-base and systems used by these firms. I am not against the arrival of foreign firms per se. I am more worried about opportunities for Indian professionals and management control.

    I do agree with your final analysis.

    Comment by HmmBut — March 1, 2008 @ 7:49 pm

  37. So it looks like according to some people (mostly in developed countries it appears), if Indians want to have good quality services and goods, they need to get out of India. Else, keep putting up with shoddy goods and services as we have for a long time. The sheer callousness of this is beyond despicable, and is really not worth debating further. I think the Indian Govt should introduce a huge tax on NRIs, maybe equal to 20% of their worldwide income, so they can also take one for the team :-)

    BCG also conducts competitive surveys and market research. Please compare the reports from MARG on the FMCG sector ca. 1993-1998, and the subsequent ones. This is your homework. Once you see the differences, you will have answered your own question. Unfortunately, I cannot believe one can be so naive as to suggest Indian companies wait around till Indian law firms get together the skills to meet their needs. Well, while we are at it, why don’t we kick out the consultants who helped design the Mumbai-Pune expressway, the numerous IT parks in the country, the new airports at Hyderabad + Bangalore, the metro in Delhi, and let us all wait until every single consultant has acquired all the skills that are needed before we take up any more projects. I am incredulous that people can be so short-sighted. The global competition is not going to be waiting, and India is going to fall even further behind. Luckily, many Indian government officials are themselves realizing the folly of thinking along these lines and hopefully such protectionist voices will continue to stay in the minority as India continues to liberalize.

    Comment by Observer — March 1, 2008 @ 8:15 pm

  38. While I would normally be against deletion of comments, I think it is important to make a distinction between the kinds of forum that one wants this to be. I think free-for-all forums, where heated exchanges and rambling discourses are commonplace, are one possible manifestation. Another incarnation would be one where the debate stays on focus, comments are incisive, add to the body of knowledge, and are worded as they would take place in real life between professionals. Needless to say different types of forums attract different kinds of people, and also turn off different types of people. It is up to the moderator to determine which crowd should be associated with this in the long run.

    I think I am pretty much tapped out in terms of my knowledge on this subject, so I will stop here.

    Comment by Observer — March 1, 2008 @ 8:26 pm

  39. Why do you brandish the threat of deletion? Nobody called for deleting anyone’s opinions here. Something might be off-topic for you but on-topic for others. You concerned with the consumer class. Fair enough. But these very consumers are also workers who have to earn money in the first place that they can spend on their consumer fantasies. Why should we focus only on the consumerist part?

    kaangeya made some relevant points about the needs of the earner and also the professional classes. That’s the perspective from the other side. How that less relevant? He added a lot of information regarding the experience of the accounting professionals vis-a-vis the entry of foreign firms.

    I have added information from the experiences of American consumers and how it should not be emulated in India. When the US is moving away from the consumerist paradigm (or trying to do that with minimum damage) why should we run into it without a thought? I have also shown the differential treatment meted out to Indian professionals with Indian qualifications. Finally, the big picture matters. Western countries happily put up barriers whenever it suits them. Some of these are non-trade/off-the-book barriers. There is no reason why we should give up our bargaining chips so easily (kaangeya’s point.)

    Censorship is fear of ideas and you try to mock those who disagree with you as some “crowd” that you don’t want to “associate” with. On the other hand, what is seen are posts baiting and bashing China and commenters who cannot stop themselves from arguing whether China is better or worse than India. What do you want? Blogposts followed by comments from a bunch of yes-men?

    I am especially happy with kaangeya’s post because it moves beyond simplistic arguments about trade but does not meander too much into other realms that are connected but probably of no interest to most people like my posts. Kudos to him/her for understanding the issue at a deeper level.

    Comment by HmmBut — March 1, 2008 @ 8:50 pm

  40. @ kaangeya I asked the Balaji if he has a reading comprehension problem, and the moderator delted the comment. Now I am asking hte moderator, do you have a reading comprehension problem?

    We have a problem with comments that are not civil or rude. We will happily delete those all day (as we did with your previous comment).

    @ Observer

    Thank you for your participation and comments. Don’t be too discouraged by off-topic comments from the likes of HmmBut or kaangeya, who’ve managed to swallow huge amts of space and added very little of substance.

    Comment by admin — March 2, 2008 @ 12:41 am

  41. From where I sit – not far from The City in London – many of my Cambridge-educated, Indian lawyer friends are working furiously gaining experience with Magic Circle law firms and building relationships with clients across sectors. What is fascinating is that most of them have an explicit or an implicit promise from their employers that when the India office opens, these lawyers, trained in-house by these firms, will be the first to be sent there. If some have not already made Partner by then, the move may effectively make them one. The start-up staff in most international growth plans is usually from the parent firm. That said, some firms in London also employ lawyers from National Law School in Bangalore, so even those who are ‘India-educated’ lawyers are being honed in the specific law firms’ ways of doing business.

    Many of these lawyers have, in their summer holidays during student years, worked in and built connections with leading Indian law firms. Many of these Indian law firms are effectively unofficial suppliers of legal services to those clients (of major international law firms such as Jones Day), who already have entered India. One major route of entry for the international law firms would be to acquire their Indian ‘partner’ firms. Is it possible that firms, who do not have such relationships, are protesting to delay the process till they can convince someone to buy them out as an entry route to Indian market?

    Somebody mentioned licensure procedures. A point about legal structures about LLPs etc was also raised. But above all is the question – what is making some in this sector protest so much? That question may lie more within the firms that within the market place for legal services.

    Thanks.

    Comment by Shefaly — March 7, 2008 @ 5:36 pm

  42. Don’t be too discouraged by off-topic comments from the likes of HmmBut or kaangeya, who’ve managed to swallow huge amts of space and added very little of substance. Admin, it looks like you too have a problem dealing with arguments. Since you have no answer to the questions I have raised on what competitive advantage accrues to India from ignoring its own laws, you may draw your own conclusions about why you are behaving thusly. I am not using the words I have earlier because I want to work around your deletion filter and I want others on this thread to read this comment.

    Shefaly I know that these workarounds are happening already. The audit/accounting profession has been through it already, when KPMG got together a group of Indian CAs named Kulkarni, Pawar, Mhatre, and Gadgil or some such combination and named it KPMG in India! There are good reasons why foreign firms prefer to deal through the same firms they use “back home” etc. In falling over ourselves to fall at the feet of foreign firms and allow overseas professionals a free run of India practice, India gets nothing in return. I am not arguing on behalf of Indian law firms who well may be making all these noises to buy time or space for themselves. I have earlier described the hidden motives among Indian audit firms that are standing in the way of the entry of foreign firms. There are bigger issues of trade involved here. If MNCs Indian and non-Indian are so keen to allow foreign firms into the country, India must hammer out favourable deals for its professionals to pursue their trade in other lands. That means an Indian doctor should not have to take the FRCS in England to pass it (as does happen invariably these days – because if you take it in India you are sure to fail), or travel to the US to take the USMLE. The G-8 have raised all sorts of barriers to protect their professions – the last step in the liberalisation of global trade. And these barriers probably were never meant to block the entry of foreign professionals, they are simply a result of the very process of professionalisation of services and trades going back to the guilds of the Middle Ages. But today they serve the new purpose of keeping foreign professionals out admirably. Over and above that is the problem of work authorization. Why should India throw a red carpet before foreign professional firms and grant their partners a professional license without a question when an Indian professional is not granted the same in the firm’s country of origin.

    We have a problem with comments that are not civil or rude. We will happily delete those all day (as we did with your previous comment). Admin that’s no problem, you must be reading the posts before you delete them, so you are sure to learn something. What do you have a problem with? Do you have a problem with comments that are “not civil” or do you have a problem with comments that are “not rude” :-) :-)

    And Admin, this is for you – “Reciprocity is a foundational principle of trade, in which the exchange of money is only a superficial indicator of equivalence, and rarely captures the value of goods exchanged. Selling our markets cheaply isn’t simply wrong but plain stupid.”

    Comment by kaangeya — March 14, 2008 @ 11:56 pm

  43. @ kaangeya says… “Reciprocity is a foundational principle of trade, in which the exchange of money is only a superficial indicator of equivalence, and rarely captures the value of goods exchanged”

    Umm… why does the exchange of money not “capture the value of goods exchanged”?

    Let me ask you a direct question: Does the entry of more law firms benefit the Indian consumer (clients of legal firms, in this case) — yes or no?

    Comment by Prashant — March 15, 2008 @ 12:48 am

  44. Prashant,

    Global trade goes well beyond Xactions and is built on several other arrangements that are negotiated, which of course are assigned monetary value in currency. But these arrangements differ in that they have to be valued, while the Xaction itself happens at price struck by hte buyer and the seller. Tariffs and other barriers are fixed on the basis of reciprocity, and where they aren’t someone’s being had.

    And no direct answer to our 2nd question. Entry of foreign law firms from the US may benefit the Indian client in one way. I have dealt with several counsel for both corporate and personal matters. And much to my disappointment in some cases I was offered two fee rates one for a full cheque payment and the other… I leave it to your imagination. Some firms I have dealt with are way behind the times in terms of automation, training etc., but simply old fashioned not incompetent. I think very highly of our lawyers and judges, and am all praise for some of their judgements in the case of pharma IP etc. But their poor record at processing the backlog is a disappointment. But this is a problem for us to solve. How are foreign law firms going to change matters? Take the case of banks. MMS in his FM avatar during Raogaaru’s regime at first was for the unrestricted entry of foerign banks to give a shock to the lethargic and ramshackle PSU Indian banking system that treated its customers like dirt and its employees like monarchs. But after the Fairgrowth fiasco, Rao and Singh decided to let the private Indian banking sector expand (and some say thanks to some generous advice from H.T.Parekh) and fill the niche for clean and courteous services for the middle class (aka our everyday Shankar, Salim, and Simon) who do an honest day’s work and pay their taxes. We are much better off today with a globally competitive HDFC and an ICICI (of course we have had GTB too!).

    And no professional services are not like industry where xfer-of-technology; indegenisation, phased-mfg.-program etc., will never work. Professions are silos and required to be so. Professional firms as a rule must be composed of partners from the same profession. The GoI could get a few 1000 lawyers trained abroad every year on LL.M. and with correspondent law firms where required and offer whatever any foreign law firm can in India. What’s wrong with that?

    Comment by kaangeya — March 15, 2008 @ 3:22 am

  45. I think the issue is not whether Indians are not allowed to go abroad and practice or not. The issue is whether a certain set of policies will benefit the Indian people and Indian companies. This crucial distinction seems to be completely ignored. The welfare of “non-resident Indians”, and their facing restrictions in some professions is not of paramount importance to the Indian people in India. Reciprocity really has no relevance to Indians in India, except for those looking to escape from India, and frankly we could care less if non-resident Indians face restrictions in their professional ambitions abroad. I think if responses from non-resident Indians are to be taken seriously, they must focus on debating the aspects of economic policies that will benefit India. This blog is after all indianeconomy.org. I am sure there must be other blogs dealing with reciprocity and issues faced by non-resident Indians etc.

    To elaborate, foreign banks in India have played a very valuable role in the Indian scenario. Many Indian companies like TCS, Wipro, Infosys and others in the IT sector (which is what I am familiar with, there may be others), use hedging strategies against currency exchange rate risk. From reading the RBI report from last October (available on RBIs website at http://www.rbi.org.in under “Publications”), and from other news articles from Business Standard, the primary banks who advise them on the hedging contracts are ABN Amro, Standard Chartered, Citibank and HSBC. Yes ICICI Bank also provides these services, but the key point is that the foreign banks play a critical role here. We cannot kick out the foreign banks from India, just because foreign countries impose restrictions on Indian banks and Indian banking professionals from operating in their countries. Similarly, we cannot kick out foreign consulting companies from India, just because foreign countries impose visa restrictions on Indian consulting professionals. Same with telecom companies, car companies and many others. The law segment is not sacrosanct. Again, the crucial question is, will their services be of use to Indians in India? Can they play a role in some market segments not adequately addressed currently? If yes, then issues like reciprocity for non-resident Indians are, to be brutally honest, completely irrelevant. If the debate centers around these two questions, I would definitely be very interested in reading and possibly learning from the responses. Also, responses must be factual and not anecdotal, in order to have a high-quality and focused discussion, instead of meandering theories on everything from globalization, environmentalism, Latin American instabilities, African misery etc.

    Comment by Observer — March 18, 2008 @ 7:49 pm

  46. Observer,

    Today’s resident Indian is tomorrow’s NRI, and day-after-tomorrow’s resident Indian. Considering how much India’s expat workforce contributes to the economy, I am surprised you ignore it. Goods, services, and people are all a part of the trade equation. The Indian economy benefits both from the expertise sourced from abroad and the remittances it earns from its people working overseas. Since it is a question of skilled people, not only services, but also the free movement of skilled people should be considered. Saying that you should not bring that into this discussion is an arbitrary axiom that serves no purpose. Everything is negotiable in trade and the most advantageous terms are to be had when there is reciprocity. For instance NAFTA created a new worker foreign worker category in the US for Canadian and MExican citizens, which stands apart from H1B. Singapore has a special worker exchange arrangement with the US. Scandinavian countries have for decades had a liberal work permit dispensation among themselves, which is the model today for the EU worker exchange rules.

    Comment by kaangeya — March 27, 2008 @ 8:08 pm

  47. I think “non-resident” Indians can be counted upon to focus on the real issues when they decide, if ever, to be resident Indians again. Until then, the issues they consider important may really have no relevance to Indians living in India. Non-resident Indians, if they are to be taken seriously, should adopt the mindset of a resident Indian, and look at these policy issues only from the angle of the 1.1999 billion people who will be resident in India for life. Speaking as a resident, and a taxpayer in India, I can categorically state that I have absolutely no interest in NAFTA, Singapore Visa, Scandinavia, etc. Discussions seem to be meandering again as I had noted previously. I am concerned about whether this policy will help people in India, who are resident for life in India, with some appropriate safeguards. This is the core issue which needs to be looked at.

    Comment by Observer — March 27, 2008 @ 11:21 pm

  48. Cyril has for obvious reasons argued vehemently (if not very coherently) for trade barriers in his fief. Can’t blame him – he interacts every day with Investment Bankers, and can clearly see what the entry of MNC I-Banks has done to the wage costs and market positions of the old Indian I-Banking firms. He no doubt fears that the entry of global firms would turn his firm (which in my view is one of only 3 or 4 quality securities law firms in this country)into an also ran. (To his credit, AMSS tends to pay its lawyers a princely sum compared to some of the other Olde law firms in India)

    The other issue is that the Bar Council, and other trade groups of lawyers tend to be dominated by the old legal families – am sure that most of the Junior Partners and Associates at AMSS would much rather see their salries rise rapidly with the entry of international competition.

    The trouble with lawyers is however that they tend to be numerically illiterate – else he’d also look at the kind of value that has been created by the Rasesh Shah’s of this world, by operating a quality firm that provides services to clients in the vast fee umbrella provided by the global I-Banks.

    Comment by Unknown Indian — April 4, 2008 @ 10:56 pm

  49. [...] It also appears that this is going to be the state of affairs for the times to come. A large percentage of policy and decision-makers in India are law graduates, and the advocate lobby is very strong in India. Only recently, one of the partners at Amarchand Mangaldas wrote a strong article against Liberalization. [...]

    Pingback by Lawyer salaries skyrocket in India as foreign firms poach talent « LPO News — April 16, 2008 @ 11:29 am

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