India's decision to allow foreign law firms to establish offices in the country is set to shake up its legal services industry, with local firms fretting star performers could soon be poached and predicting that fees will shoot higher to retain them.

As of March 10, foreign law firms can now set up shop in India to offer M&A and corporate advisory services as well as to handle arbitration disputes for foreign clients.

India had some $50 billion in cross-border deals last year while corporate arbitration cases and other legal disputes have continued to grow, making the South Asian market a lucrative one for global lawyers who until now have had to operate on a fly-in, fly-out basis.

Under the new rules, the remit of foreign law firms will still be somewhat limited as they won't be able to appear before courts or advise on Indian laws, though they will be able to seek the expertise of local lawyers "on any subject relating to Indian laws".

That caveat, however, also has local lawyers worried the move could represent the thin end of the wedge in opening up the wider legal market - one that Asian Legal Business estimates is worth up to $4 billion.

Local firms providing services to global companies such as Facebook-owner Meta Platforms, Apple and Walmart are already gearing up for the challenge.

"Pricing for legal services will go up very significantly," said Cyril Shroff, founder of Cyril Amarchand, one of India's biggest law firms, noting that local firms will in general need deeper pockets to go up against their foreign rivals.

"Indian firms that do not increase their prices and (don't) focus hard on profitability do so at their own peril. They will lose their best talent and eventually perish."

A senior partner at an Indian law firm typically charges around $400-600 per hour for M&A advisory services, but a partner at a New York firm's partner can bill $1,800.

WHO WILL MONITOR?

The Bar Council of India says its new rules will help establish the country as a hub for international commercial arbitration and boost the industry overall. Prime Minister Narendra Modi has also said India needs broad reforms to fix a legal system which is overburdened with millions of cases.

The move, while long sought by overseas law firms, appears to have been somewhat unexpected in its timing.

Foreign law firms have yet to announce plans for new offices in India but international firms like Allen & Overy and Herbert Smith Freehills told Reuters they are examining the new rules.

DLA Piper said in a statement it will work with its clients to devise a strategy for the Indian market while Clyde & Co said there were "opportunities for growth" in India.

Lalit Bhasin, who heads the Society of Indian Law Firms, said there were concerns that a foreign law firm might de facto operate as a full-service firm by hiring local law firms to advise on areas concerning Indian law.

"Who is going to monitor whether that foreign law firm is not engaged in practice of Indian laws?" Bhasin said.

Another concern is the potential loss of business as a global company setting up a base in India could prefer to stick with its existing international team of lawyers.

"Newer companies who want to come to India may want to work with the same lawyers," said Gaurav Dani, founding partner of India's IndusLaw. "That would to some extent change the climate."