INDIA (DOMESTIC FIRMS): An Introduction

An eventful year in the international spotlight, due to the G20 presidency and more, draws to a close, with general agreement on India’s status as a major emerging global power, and its role as a bridge between the developing and developed world. Its power-broking has resulted in key diplomatic wins, which include laying down the conceptual underpinnings of an economic corridor that could be a potential alternative to the Belt and Road Initiative; and an aggressive push for a unique lightweight and scalable Digital Public Infrastructure plan as a framework for delivering digital public goods.

But in (at least the first half of) 2024, India’s gaze is likely to turn inwards, as the world’s most populous democracy gears up for its general elections. As a curtain raiser, major transformations are already under way, notably, the decision to reserve 33% seats in central and state legislative bodies for women, passed by the Parliament after a quarter of a century in waiting. Separately, an ambitious proposal to overhaul the country’s colonial-era criminal laws is presently under parliamentary review. While it will likely be a few years before the laws take proper effect, these may impact the functioning of the Indian democratic system in interesting, perhaps even unprecedented, ways.

In the spirit of overhauling the legal system, the Indian legislature has also undertaken a multi-year project of updating other laws, either by deleting obsolete statutes or provisions, or by modifying them to meet present-day needs. For example, Parliament enacted a law to decriminalise or rationalise around 183 provisions in 42 central statutes, with the stated objective to “further enhance trust-based governance for ease of living and doing business”. The roster of amended statutes includes laws governing intellectual property rights. Patent law now has new, higher fines for certain offences, for example, the fine for an unauthorised claim for patent rights has increased tenfold; and the fine for refusing to provide information upon request may be determined in proportion to business sales. Under the trade marks law, penalties have either been omitted (eg, for falsification of entries in the trade mark register), or decriminalised (eg, the penalty for falsely representing a trademark as registered, is a fine rather than imprisonment). Independently, the Cinematograph (Amendment) Act, 2023, has introduced new provisions and penalties relating to film piracy (including piracy using digital means), providing a boost to the entertainment industry.

Adaptive change appears to be the mantra, as forward-looking legislative and policy measures seek to keep up with the explosive growth in business and society, being particularly responsive to technological developments.

The most significant of these is the enactment of the Digital Personal Data Protection Act, 2023, which implicitly acknowledges the value of data in an increasingly digitised world. Now, prior consent must be sought from individuals whose data is being processed, who also retain the right to withdraw such consent in certain circumstances. Transgressors face severe financial penalties, including for failing to take security measures to prevent data breaches; and for accidental disclosures, sharing, altering, or destroying personal data. The law attempts to strike a balance between a guaranteed fundamental right to privacy and reasonable restrictions associated with such right. The actual working of the law will be tested only in the coming years.

Data privacy may be central to the functioning of many new industries, but other aspects have also caught regulatory attention, as can be seen in the gaming sphere. A new co-regulatory arrangement between the government and registered self-regulatory bodies (SRBs), brings online games, particularly “real money” online games, under review. SRBs are obliged to create frameworks that ensure, among other things, safeguards for children, as well as against user harm, including self-harm, psychological harm, gaming addiction, financial loss and financial fraud.

Relatedly, in efforts to create an open, safe, trusted and accountable digital space, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2022, were notified this year. Under these rules, uploading content that actively spreads false information or information that is obviously incorrect or misleading is no longer permitted. The rules place new obligations on intermediaries, including social media platforms, while also, arguably controversially, increasing their ability to censor and control information.

In a similar vein, the self-regulatory body, the Advertising Standards Council of India (ASCI), and the government, have responded to concerns of manipulative practices by online businesses and stakeholders that can especially affect vulnerable consumers. In one development, ASCI issued Guidelines for Online Deceptive Design Patterns in Advertising to ensure that digital advertisements do not breach stated industry codes on dark patterns, such as drip pricing, bait and switch, false urgency, and disguised ads. Similarly, the government released a binding guide on disclosures on material connections to be made by influencers on social media platforms, such as by way of benefits or incentives offered by advertisers (eg, monetary compensation, free products, discounts or gifts; trips or hotel stays). These are only a few examples of a growing trend of recognising the importance of responsible and ethical online business practices, which will likely improve consumer protection significantly.

Elsewhere in the regulatory arena, India has stepped up vigilance on certain kinds of financial practices. Previous exemptions granted to foreign spending through international credit cards under the Liberalised Remittance Scheme have been removed, amid efforts towards prudent foreign exchange management, as well as concerns of potential abuse by top money remitters.

Tangentially, capturing novel money laundering practices was the motivation for bringing virtual digital assets, which include cryptocurrencies, under the ambit of the Prevention of Money Laundering Act. The law now allows the Indian government to regulate and monitor the trading of cryptocurrencies, including by requiring exchanges and traders to comply with the same standards that banks and other financial institutions are subject to, such as the Know-Your-Customer (KYC), anti-money laundering norms and due diligence standards.

Separately, Corporate Social Responsibility (CSR) regulations, which require certain companies to mandatorily undertake CSR activities and spend at least 2% of their average net profit of the immediately preceding three financial years on CSR activities, have also been tightened, with additional reporting and accountability obligations being introduced. Under a 2022 amendment, among other things, companies must establish a CSR committee to monitor their CSR commitments, particularly, any funds in their “Unspent Corporate Social Responsibility Account”. A new format for CSR reporting in annual reports has also been specified, which must now include express disclosures about unspent amounts, and reasons for the same.

Increasing scrutiny of corporate spending is also a marker of the pace of business growth itself, which is also seen in the dramatic increase in patent filings in India, with filings having gone up by more than 50% in the last seven years. In this context, the Economic Advisory Council to the Prime Minister, the government’s economic think tank, issued a much-discussed working paper titled “Why India Needs To Urgently Invest in its Patent Ecosystem?” Its recommendations for addressing delays include increasing human resources at the patent office, and fixing procedural issues such as timelines, compliance, etc. The Intellectual Property Office has since issued a series of notices designed to improve patent application processing. On the judicial side, the Madras High Court became the second such court to establish an Intellectual Property (IP) Division to deal exclusively with IP cases, promising speedier and more efficient relief in such matters.

Legislative recognition has also extended to other areas where business and society meet, such as by way of the Biological Diversity (Amendment) Act, 2023. Now, certain communities and practitioners of Indian systems of medicine are exempted from needing approvals before obtaining any biological resource for commercial utilisation, whereas companies registered in India and controlled by Indians are now treated as Indian companies, regardless of any foreign ownership, thus reducing compliance requirements. Similarly, in the domain of healthcare, the government issued the National Medical Devices Policy, 2023, introducing measures and expressing intent to follow a patient-centric approach to establish India’s presence as a global leader in the manufacture and innovation of medical devices.

It is evident from the changes that are sweeping the Indian law and policy space that many interests are jostling for attention. While a period of exponential commercial growth is feasible in the medium to long term, the country’s burgeoning population presents novel challenges and opportunities in the social and economic spheres. Many demands will be made of the government that takes charge in 2024, not least creative ways of problem-solving. It would not be presumptuous to speculate that the India of the coming years will be at once a sandbox for, and a trailblazer of, new outcome-driven modes of lawmaking and governance.