With India’s election now behind us and a new cabinet in place, the policies and agenda for the term ahead were the focus of the Mayer Brown and IPF event “India Today: Managing Risk for Business and Investment” held on 18th June. Dr. Mohan Kaul, President of Indian Professionals Forum opened the event by noting Prime Minster Modi’s successful campaign and the hopes for continued reforms.
Cyril Shroff, Managing Partner of Cyril Amarchand Mandaldas, led the session by sharing his thoughts on the risks and opportunities presented by the new Modi 2.0 government as well as key regulatory trends such as the Insolvency & Bankruptcy Code, ease of doing business, activism, class action and e-commerce data localisation.
Modi Wave 2.0
Mr. Shroff noted the Modi Wave 2.0 was driven by young, first-time voters and women voters swayed by a campaign that appealed to aspiration, stability and security. The new government offers a fundamental transformation in terms of economic composition to enable growth to a 5 trillion dollar economy. The prime minister will likely govern with a presidential style and a performance oriented team to deliver the government’s agenda.
Themes of demographics, social media and an end to big corruption have moved an ostensibly relationship based society to one based on rules and the government will likely continue to focus on infrastructure as a key element of its initial 100-day plan to be revealed around the Union Budget on 5th July. The budget will also provide an insight into the agenda for job creation, land reform, employment and labour reform while recognising that a Global India will require predictability of regulations and improvements in ease of doing business to attract much needed foreign capital.
Turning to the progress of past reforms, Mr Shroff observed that the new IBC law has started delivering results and while the GST law was comprehensive it was still a work in progress. Expected improvements to the IBC law include new cross border and personal insolvency rules as well as the introduction of pre-pack administrations. These reforms will provide a stronger framework to tackle the $250 billion Indian stressed assets market.
Corporate governance has also experienced significant improvements in recent years afforded by broad based changes to central and delegated security regulator laws. Mr. Shroff noted that while the role of the promoter has played a significant part in India’s entrepreneurial driven growth, further corporate governance enhancements can be expected including enhanced conflict resolution, related party transactions and splitting the chairman & CEO roles.
The debate on corporate governance has been recently strengthened by the modification of class action rules that lowers the threshold for action, though the litigation environment may be limited by a lack of plaintiffs bar or contingency fees. And while there’s been a significant uptick in enforcement of contracts more action was required to establish speedier resolutions. The fallout from ILFS demonstrated the need for the auditing profession to undergo reform to prevent fundamental conflicts in the audit business model.
Mr. Shroff’s final comments touched on data localisation and the recognition that the data of 1.2 billion people has garnered significant global interest. Draft legislation currently being debated keeps Indian data in India and sets restrictions on its export. In an acknowledgement to Europe’s privacy laws, India’s can be seen as a proposed GDPR++ and debate will shape expectations in the coming weeks
Expert Panel Discussion
An expert panel discussion consisting of Richard Heald OBE, CEO UK India Business Council; Nandita Sanghal, Managing Director ThomasLloyd Group and Sam Eastwood, Partner at Mayer Brown followed Mr. Shroff’s presentation with Deputy High Commissioner Singh concluding the discussions.
Mr. Richard Heald reflected on Prime Minister Modi’s effective presidential style of campaigning and how the formation of committees and the cabinet suggested a plan focussed on key areas. The business community would be looking for the Modi 2.0 government to move corporation tax towards 25% and with room on fiscal targets, a degree of added inflation would be manageable. Mr. Heald suggested stimulating the economy with these reforms would protect domestic growth against external pressures such as protectionism, high commodity prices and a slowing global economy. With a majority in both houses next year, the government is also in a unique position to deliver reform and while a UK-India FTA is unlikely, further improvements to the ease of doing business, such as improvements to GST and other regulations, will have a big impact.
Mr. Heald was supportive of the government’s draft data localisation bill, noting it balanced the need for internal development versus protecting the citizen and provided qualified access with qualified consent. And as India will be one of the most data rich countries of the world there is a need to create a supportive regulatory environment through the Information Commissioner’s office and other bodies to encourage the development of an AI and big data analytics ecosystem. Mr. Heald’s final comments encouraged the inclusion of India as a full member of the G7 and United Nations Security Council.
Ms. Nandita Sanghal provided insight into the risks and opportunities ThomasLloyd has experienced in operating their infrastructure fund in India. The Indian renewable energy market has been increasing in capacity with the government revising its targets upwards every year. However, India needs to seek more foreign capital as domestic supply cannot meet demand. As an investor, Ms. Sanghal noted the need for long term stability in tax policy and regulatory environment as an important prerequisite and a fundamental issue to consider is the risk to repatriation of funds.
The corporate governance regime is also an important factor with ThomasLloyd ensuring that it had a voice as an active member of the board of its investee companies with enhanced and veto rights written into shareholder agreements. Ms. Sanghal echoed concerns regarding penalising auditors with bans but noted standards of care need to be addressed. As a practitioner, the experience of an improved ease of doing business environment was surprising pleasant with compliance requirements understandable and manageable for a global company with complex local structuring requirements.
Mr. Sam Eastwood spoke of Mayer Brown’s work in helping clients with compliance reviews, joint ventures, M&A due diligence and investigations related to operations of subsidiaries in India. Mr. Eastwood remarked on the improved transparency of compliance risk, providing the Augusta Westland case as an example and noted the positive influence that global investors and financial institutions have played to improve the Indian corporate environment. The UK’s anti-corruption strategy has provided a framework to compliance and non-financial risk enforcement and Mr. Shroff remarked that India’s transition from a relationships to rules based society suggests enforcement becoming more broad based and evenly applied. Furthermore, an activist Supreme Court and social media provided further pressure to move to a more compliance and rules based society. Finally, the panel concluded with the expectation that international law firms will gain entry in to the Indian market in the next 2 to 5 years in order to enable the government’s growth agenda.
The Deputy High Commissioner Shri Charanjeet Singh concluded discussions by thanking the speakers for their insightful contributions that would be taken into consideration by the government. Echoing the theme of the event by quoting President Nixon, Mr. Singh remarked that if you take no risks, you will suffer no defeats – but if you take no risks, you win no victories. And with the pace of reforms enacted by the government continuing to pick up, the government welcomed the risk appetite of businesses and investors in helping to create a vibrant, growing economy.
The event concluded with a drinks and canapés reception with guests and the speakers.