Editor: Please tell us about your practice as it relates to transactions in India.
Mehta: Our international practice is based on three pillars that differentiate us and play to our strengths. One of those pillars is the investment funds world - private equity funds, hedge funds, real estate funds, credit funds and sovereign wealth funds. We have a strong practice in that area here in the United States, and we’ve been quite successful in exporting our knowledge and expertise from that practice to other countries. India is a special example of our success as far as the private equity and hedge fund world is concerned. We have represented more than a dozen firms that have set up substantial funds for investment in India in the hedge fund space, the private equity space, the real estate space and the distressed space.
The second pillar of our international practice is our energy practice. Given our Texas roots, Akin Gump has had a very strong energy practice for many years. We have been especially fortunate in exporting that practice to the emerging markets. Russia is the best example, but India, too, is an important part of that story. We have represented firms like the ONGC and, more recently, we have represented GAIL, India’s gas company, in transactional matters. So, energy and infrastructure are an important part of our story.
The third pillar is our policy and national security practice. Akin Gump has a very strong lobbying and national security practice in DC that we have transferred to our international practice as well. For example, we do a lot of work related to the transportation of sensitive technologies across borders. We also have brought Gen. Jim Jones on as a senior advisor to assist us in the area. Gen. Jones has had an illustrious career, including serving as President Obama’s first national security advisor. To sum it up, the three pillars of our international practice that reach into India are funds, energy and policy.
Editor: Please describe the recent changes in India’s foreign direct investment policy on multi-brand retail establishments.
Mehta: The retail industry in India has for years been a protected industry, given that, in India, most retail is handled on a “mom-and-pop” store basis. To protect those small stores, which are so central to the economies of any given locality, India has been very careful about allowing foreign investment to come in on a large scale, particularly in a control-oriented fashion. Under the new rules for multi-brand retailers entering the country, India is now allowing 51 percent investment by foreign firms and 100 percent ownership for single-brand firms, subject to certain conditions, such as approval of the provincial government where the retail outlet is located. This will be a very important step in the direction of modernizing retail in India and, given the size of the Indian consumer base, will provide retailers with an opportunity to establish themselves in one of the world’s most important markets.
This is part of a larger series of steps that India has taken since 1991, when the Indian economy began to liberalize under the guidance of the then-finance minister, and current prime minister, Dr. Manmohan Singh. He led the charge on liberalizing regulations for investment in India by foreigners, enabling India to import more capital from abroad to help address a balance of payments crisis. While reform has moved in fits and starts over the last 20 years, here we see the impetus for reform as quite strong.
Editor: Why has the joint venture vehicle been a favorite device for entry by foreign investors?
Mehta: Foreign investors have often been precluded from entrance into India’s markets without a local partner from a legal perspective. In addition to that ownership-related rationale, there’s a simple rationale -- India is a complex market. If a foreign business is expanding into India, it will be much better off, in most cases, if it joins forces with a local partner who understands the complexities of the market. For example, India has more than a dozen official languages. Those from north India and those from south India often have only one common language, English. It’s rare that you’ll be able to get by with Hindi in a place like Chennai (formerly Madras), and the reverse is also true if you speak Tamil, a south Indian language – you’ll not be understood in Delhi or Mumbai. One of our clients in India put it very well when he said, “Part of the reason Americans don’t understand India is they think of India as a country.” In many respects, "India is more like Europe" in that it is more like a confederation of different nationalities.
Editor: And vast differences in wealth as well.
Mehta: There are vast differences in wealth in India sadly; this is true of many emerging market nations. But keep in mind: what’s really driving the interest in India is the fact that the middle class is growing so rapidly there, whereas when I was growing up and visiting India, the middle class would have been a small fraction of the country. I think most statistics tell you that more than 300 million people are now in the middle class or higher, out of a population of more than one billion.
Editor: Please describe one or two of your representations of private equity funds in Indian investments.
Mehta: We set up a hedge fund some time ago that was focused on long and short investment in India that was a very successful fund. Also, we’ve closed what I think is India’s most important distressed investment fund. More generally, the firm has successfully represented private equity funds in Indian portfolio investments and M&A deals, including industries such as infrastructure, energy, health care, media and telecommunications.
Editor: Is it advisable to structure investments using a subsidiary in Mauritius?
Mehta: There is a tax treaty between India and Mauritius, which has been the subject of much debate within the Indian regulatory and policy-making community as well as the financial community. The main reason for Mauritius essentially is because they have a favorable tax treaty with India, and Mauritius does not impose material amounts of tax on companies formed there.
Currently, we believe that India is still respecting the Mauritius treaty, which is advantageous for investors. Whether that will continue to be the case in the long term is an open question. Singapore and other options have also emerged more recently as investment channels to India, but they have their complications as well.
Editor: Please describe the firm’s arbitration practice in India.
Mehta: Several years ago, we were very fortunate to have brought over from Hogan Lovells an arbitration and litigation practice focused on international matters that is housed in our Geneva office. Charles Adams leads that practice and is very much involved in our India practice. The work of that practice has ranged from complex commercial disputes to very sensitive internal investigations.
Editor: What large joint ventures have transpired in the infrastructure space?
Mehta: It is now commonly accepted that the piece that is limiting the India growth story is infrastructure. While India is still surprisingly agrarian in terms of the economy -- an important statistic for assessing the Indian economic story in a given year will be the amount of rainfall -- there’s only so much money that can be made in an agricultural economy. So, much of the story of growth around the world has also been a story of industrialization, which, in turn, leads to urbanization. Now, with people crowding into big cities, there is a premium on high-quality infrastructure. Part of the reason China’s growth has been so accelerated compared to India’s is that China has done so much more, and more rapidly, to build its infrastructure.
Take road travel in big cities as an example. Traveling some 10 miles out of Mumbai to the airport could take up to three hours by car. However, today, the recently completed Sea Link causeway bridge in Mumbai, for all practical purposes, reduces the drive by one-half the time for 100 rupees or so (approximately two dollars). Addressing infrastructure shortfalls in this way stimulates economic productivity. Similar shortfalls with infrastructure plague India’s airports, trains and telephones. Whether through new bridges, modern airports, power projects, better roads or cell phones, India’s infrastructure is improving, but too slowly. Large international companies may wish to focus on the infrastructure sector. Much of the work our attorneys are doing in India in the funds and energy space involves addressing this infrastructure need.
Editor: Why was India not as severely affected by the downturn as other parts of the world?
Mehta: India was not as severely affected by the downturn, in part because India has so far to catch up in terms of its economic growth. It is also a young country with a growing population, a majority of which is under the age of 30. The term “demographic dividend” is applied to India – many are saying it has the most attractive demographics of any country in the world.