COVID-19: doing business with India in troubled times

Our team: Tim Wright, Mythily Katsaris, Alex Haffner

Setting the scene

The Indian Government imposed a complete lockdown for 21 days from 25 March 2020 under The Disaster Management Act, 2005. Further, most Indian state governments have classified Covid-19 as an `epidemic disease` in order to invoke the Epidemic Diseases Act, 1897. The effect is to give municipal corporations and local authorities the power to quarantine people and take other steps towards the containment of the COVID-19 epidemic, such as restricting gatherings of people and imposing restrictions on inter and intra-city travel.

India is home to many global businesses such as Tata Group (which owns Jaguar Land Rover and British Steel), drug manufacturer Dr. Reddy’s Laboratories, and industrial conglomerate Mahindra Group, as well as many outsourcing companies, the best known of which include Genpact, Tata Consultancy Services (TCS), Infosys and HCL Technologies.

India’s largest trading partners are USA, China, UAE, Saudi Arabia, Hong Kong, Iraq, Singapore, Germany, South Korea and Switzerland. India is the UK’s 13th largest export partner, with trade totalling around $14.7 billion in 2018. Given a long shared history of commerce and the advantages India presents in terms of low-cost access to relevant expertise, many UK headquartered banks, insurers and other enterprises have outsourced a wide range of IT and business services, activities and functions to Indian companies including application development, desktop support, customer service, marketing, finance, accounting, HR and procurement or have established their global business centres and shared service operations in India.

Before the COVID-19 pandemic took hold, the World Economic Forum was projecting a 2020 GDP of US3.202 trillion, making India the world’s fifth largest economy, ahead of France and the UK. India has a population of over 1.3 billion, about 65-70% of which live outside the main urban cities.

Unfolding situation

Contacts we have been speaking to on the ground tell us that the situation is unfolding day-by-day with large parts of the economy grinding to a halt. We hear also of uneven application of the rules from state-to-state, and district-to-district, with interpretation and enforcement left in many cases to individual policemen. Whilst many factories have closed, the ones which remain open are faced with a raft of challenges in getting product to market across their supply chains including printing and packaging, storage and warehousing, and distribution and shipping, although government is attempting to keep this part of the supply chain moving, especially for “essential” products.

Further, as we understand it, the short-medium term situation for businesses in India remains somewhat uncertain with a lack of clarity about the levels of support for business (and for individuals) which the Indian government might provide. So far, no overarching stimulus package has been announced although there is help for small and medium sized businesses. Whilst at present, the number of reported COVID-19 cases and related deaths remains relatively low; India is known to be a very “social” country and there are fears that social distancing and other measures may prove very hard to implement especially for low paid manual labourers, ragpickers, street vendors and other wage labourers who have to work each day in order to eat.

How can we help?

We note the impact this unfolding situation is having on Indian companies doing business into the UK and the rest of the EU and, correspondingly, for UK and EU companies who rely on Indian operations in some way, including global business services, supply chain and outsourced services.

Recently we have been advising on a range of issues including assisting with the repatriation from the UK to India of project staff of a service provider faced with the cancellation of its customer contract, analysis of force majeure and related provisions in customer contracts, and review of business continuity arrangements. So that we can provide up-to-date advice we have been speaking regularly to senior leaders and experts working in India. Set out below are answers to some of the key questions we have discussed with them.

Q1. What measures have been brought in to try and combat the spread of COVID-19 in India?

A1. The COVID-19 crisis hit the Indian press from around 20 January when the Government of India (GOI) starting taking measures to fight the outbreak and limit its impact, such as airport screening off passengers arriving from China and other affected countries. This was gradually increased and rolled out to all ports (sea, air and road). Further restrictions were brought in by the GOI, such as the “Janata Curfew” on 22 March, before Prime Minister Modi announced the 21-day total lockdown on 24 March. The GOI also launched a repatriation program to bring stranded students and travellers back to India, with tests carried out at departure and individuals kept in quarantine in military and paramilitary hospitals on arrival.

Q2. Has the implementation of measures been uniform across India and how has the supply chain been impacted?

A2. States and districts have tended to implement the GOI’s directions in different ways, and in some cases it was business as usual. The GOI then acted to ban all movements apart from essential items such as milk and vegetable until 15 April. Two high-powered groups have been appointed by the GOI to look at sectoral issues and movement of goods; issues remain with transportation and logistics however. GOI officials expect these issues to be resolved in order to open up essential services in the next weeks assuming that the situation does not rapidly deteriorate. Current GOI thinking appears to be that while the measures will not need to be extended beyond 15 April, the lockdown may be lifted gradually in phases.

A3. What steps are companies taking to try and secure that supply and ensure that inventory levels are sufficient to meet contractual obligations to customers?

Q3. Many organisations were not equipped to handle such situation with the rapid pace at with Prime Minister and the GOI acted. Whilst business continuity plans are designed to counter the effect of terrorism, interruption to utilities or the effects of a natural disaster, dealing with a global pandemic with entire countries placed in lockdown is hard to plan for. Businesses have formed crisis committees who are attempting to deal with things day-to-day as the crisis unfolds. Businesses are working hard to fulfil their commitments to customers but are facing delays with land, sea and air shipments. Industry bodies including CII, FICII and ASCOCHEM are partnering with the GOI to discuss sector issues as the GOI seeks to reduce the impact on industry. It is suggested that UK and EU customers of Indian companies affected by the crisis work through these industry forums or approach the Prime Minister’s office directly.

Q4. Is working from home working?

A4. Apart from exempt essential services, businesses have had to switch to a work-from-home policy, something which was not that common in India before the COVID-19 outbreak. Challenges include lack of quality internet bandwidth especially outside the major cities – in response, the GOI has stopped HD transmissions which has improved capacity. Outsourcing contracts often contain strict requirements which would ordinarily prohibit working from home (WFH), as well as data security and related obligations. IT and business process outsourcing companies have been seeking waivers from their customers to permit home working for any extended period. WFH is said to be working well for with companies with good technology infrastructures and deep pockets such as BFSI (banks, financial services and insurance) and multi-nationals and similar companies who have complete supply chain processes aligned from factory to outlets. Businesses are providing staff with laptops or phones (where orders are taken by phone).

Q5. Will COVID-19 result in GDPR breaches?

A5. Before COVID-19, businesses were already very strict on data processing and data security because of the GDPR and other applicable regulations. Access to data is very restricted – only departments and sections with a need, have access to data. Even small businesses are very concerned to secure critical information because they are worried about losing customers in export markets. Where Indian companies handle personal data for UK and EU customers, the agreement will set out in detail the steps which have to be taken when accessing, processing and handling personal data in line with the requirements of the GDPR. Those requirements continue notwithstanding the current situation.

Q6. What about invoking force majeure clauses?

A6. An Indian government circular dated 19 February declared that the Covid-19 virus could be considered a “natural calamity” and therefore force majeure clauses should be invoked “wherever considered appropriate”. The circular holds persuasive value and is not binding on parties and will depend on how force majeure provisions are written in each contract and if such provisions provide protection to parties.

In the period since, there has been much debate as to how this can be used by public and private companies. As recently reported in the Financial Times, businesses that have declared force majeure include Indian Oil Corporation, Adani Ports controlled by billionaire Gautam Adani, and motorcycle company Royal Enfield. At the same time, the Uttar Pradesh Power Corporation, a state power distributor, recently sent a force majeure notice to renewable energy producers stating that force majeure meant they could no longer fulfil their contract obligations to those producers, leading to a rebuke from central government who responded that force majeure was not applicable and that everything should be done to maintain renewable energy production.

Whilst force measure clauses might be used to get out of a situation where a provider or exporter might be unable to perform at all, or face delays in perform, to the levels required in a contract, it seems that the missive from government is to “go all out” to meet contractual  requirements wherever possible. The GOI certainly supports this – custom officials, for example, have recently been directed to clear containers for import and export as a matter of priority.

Concluding remarks

With a 1.3 billion population, many of whom live outside the major cities, and a strong dependency on manual labour many of whom do not have access to good hygiene and healthcare, a coronavirus outbreak on the scale seen in China or the USA, for example, would be disastrous for India. However, so far the measures taken seem to be working and thankfully the numbers reported remain low, relatively speaking.

India is a deeply resourceful and resilient country and in many ways is well placed to face this challenge.

Fladgate’s India desk

Fladgate has one of the City of London’s leading India desks, with a long history of advising Indian businesses and private clients on English law matters, and maintains strong connections with the Indian business community.

India was affected by COVID-19 later than many countries, but having seen the impact on other countries from afar, is now very much in the vanguard of international efforts to combat the virus.

In this briefing, we explain the measures being taken by the Indian government, their impact on those who do business with India, and how we are already and can continue to help business navigate the unfolding situation.

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