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What To Expect In 2017 In Your Sector

India’s startup scene has recently seen a drop in investment activity, although this may be a required correction to prevent a bubble

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The New Year has undoubtedly gotten off to a rocky start on the economic front, with the demonetisation move creating economic turbulence across sectors. As the President noted in his New Year’s message, there is no doubt that this will cause a temporary slowdown in economic growth as the effect radiates across all sectors of the economy.

However, demonetisation has set a number of other positive forces in motion – innovation in fintech being the most obvious. It will be crucial to see how these play out, along with the possibility of a permanently expanded income tax base in coming fiscal years.

The implementation of GST will be another major policy initiative to watch, which is again likely to result in short term disruption in the upcoming fiscal year, while yielding long terms gains. The GST Council needs to find its feet, establish and institutionalise working methods which will stand the test of time, as there is no such precedent; and to this extent there is a lot of work to be done to ensure that the Centre and the States are able to work well together. This is very much an exercise in long term institution building.

FDI saw a 30% increase on a year-on-year basis to $21.6 billion between April and September 2016. This is a positive trend, and we need positive policies and incentives to sustain this momentum. The Government’s Make in India initiative has yielded some headline investments, particularly in electronics manufacturing. Given the low base from which we have started, there is a lot of scope for growth. However, there are many headwinds when it comes to long term manufacturing-led growth, including increased mechanisation (which offsets the primary advantage which countries like India offer, ie. low labout costs), as well as the possibility of a wave of protectionist policies across the world triggered by the stance of the incoming US President.

The medium and long-term success of Make in India will therefore depend on the continued development of the infrastructure required to attract manufacturing companies, combined with India’s growth as a market for finished products. In other words, export-oriented manufacturing may not be a viable avenue for growth, unlike what other Asian economies have managed in the past. Coming up with the right investment and cooperation frameworks for spurring infrastructure investment requires sustained effort.

India’s startup scene has recently seen a drop in investment activity, although this may be a required correction to prevent a bubble. It is important for Government policies to focus on creating the right policy and regulatory environment for startups to bloom in India. Specifically, on complex issues such as encryption, data retention, and net neutrality, we need laws and policies which spur innovation, sustain business, and benefit the consumer.

The initial phase of this Government saw a sustained focus on deregulation and ease of doing business. Recent economic events have shifted the focus somewhat, but there needs to be a rededicated effort to ensure that red tape and the time taken to obtain approvals is further reduced.

There are certain specific issues to be kept in mind for the legal sector. The entry of foreign law firms is an issue that has advanced substantially in the last year, and further developments can be expected on this front in 2017. What is required in tandem is a relaxation of some of the outdated restrictions and hurdles which apply to the practice of law in India, particularly those relating to promotion, and ability to limit liability through the use of structures such as LLPs. Amendments are likely to the relevant laws, which will create a more level playing field between Indian law firms and their global counterparts.

With that being said, however, the fortunes of the corporate legal sector closely track those of the Indian economy as a whole, and therefore the way all of the above trends play out in 2017 will have a direct effect on law firms.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Demonetisation startups indian economy

Rajiv Luthra

Rajiv Luthra is Managing Partner, Luthra & Luthra

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