Indian regulation: what to watch out for

Author: Ashley Lee | Published: 17 Jul 2012
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India’s regulatory regime has become increasingly onerous in the last year. At last week’s IFLR India Outbound Investment Forum, issues with regulators were discussed at length. Here’s what market players think.

A strict regulatory regime is undoubtedly difficult to deal with. Nonetheless, both practitioners and in-house counsel at the IFLR India Outbound Investment Forum were more concerned with regulatory uncertainty.

Atulya Sharma, Deutsche Bank’s head of legal for the Indian subcontinent and Mauritius stated his personal view. He  believed there were two levels of Indian regulatory concerns. "One is about restrictions and the other is about ambiguity in regulations," he said. "What I react to more strongly is the latter – the ambiguity in regulations."

Others agreed. Priya Mehra, a senior associate at Gibson Dunn, said that when she’s doing a transaction, regulatory uncertainty was an issue that came up repeatedly. "In the last six months, in deals we are involved in, we’ve had to postpone the deals or the signings based on regulatory changes. GAAR (General Anti-Avoidance Rule) and Vodafone all represent a frustrating and lengthy process," she said.

Clarifying India’s tax regime was of utmost importance to Indian practitioners. The draft guidelines for GAAR were circulated last week with a proposed implementation date of 1 April 2013. India is also looking to renegotiate its tax treaty with Mauritius to close favourable tax loopholes.

Another issue that has generated uncertainty is the Securities and Exchange Board of India’s (SEBI) stance on whether put and call options are enforceable. Market players have expressed frustration over SEBI’s inconsistent position on this long-standing issue. Practitioners expect an announcement from both the Reserve Bank of India and SEBI regarding the matter soon.

But, taking a long-term view, Citigroup managing director and India head of capital markets origination, Sanjay Nayar, was optimistic. "I think what we’re seeing today is a slowdown that’s driven more by the ebb and flow of the markets," he said. "I do think that cross-border acquisitions will continue to grow. The challenges around these transactions are less to do with regulations and more to do with commercial considerations."


For more from IFLR’s India Outbound Investment Forum:

Indian natural resources M&A: what lawyers want to see
How Indian corporates can benefit from the euro crisis

India outbound M&A financing: Why corporates should look beyond LBOs
India M&A: how to handle the aftermath of an outbound acquisition