As the senior partner of one of the world's largest law firms, hosting lavish events must become a little stale. Yet Herbert Smith's reception for government ministers and prominent local businessmen at the Taj Mahal Palace and Tower in Mumbai on 14 March must have added a little spice to David Gold's banter.

With a backdrop of the Arabian Sea and the 26-metre high arch of the Gateway of India monument – built to commemorate the visit of King George V in 1911 – it would have been hard to ignore the symbolism.

Following India's hard-fought independence in 1947, the British have returned in force, 60 years later, to unashamedly ingratiate themselves with the Indian business community.

China may have caused more excitement and hype since the communist nation began to warm to foreign investment back in the early 1990s, but India, which has remained in China's shadow for the last decade, has leapt up the geographic agenda of the most ambitious international law firms, in part because of the historic links between India and the UK.

The reasons for this recent interest are obvious. Despite rampant inequality and highly visible poverty, India's middle class and business community has rapidly expanded in recent years on the back of a decade of rapid economic growth.

This new clout was in evidence on 31 January when Herbert Smith successfully concluded Tata Steel's £6.2bn takeover of Anglo-Dutch steelmaker Corus. This was the largest-ever outward investment by an Indian company.

The firm has represented the huge Tata Group for many years, thanks in part to the presence of partner Nimi Patel, who joined the firm in 1994 from the legacy London practice Jacques & Lewis.

Back in 2000 Patel advised Tata Tea on its £280m purchase of Tetley Group's share capital as part of a joint venture between the two entities.

"We invested pretty early in recruiting Nimi back in 1994," comments Chris Parsons, Herbert Smith partner and chairman of its India group. "She has done nothing since other than focus on India. Through her efforts she has helped Herbies build the market-leading India practice in London."

A bold statement perhaps, but the City firm has some eye-catching mandates to back up the hype. Apart from its close connections to one of India's largest conglomerates, the Tata Group (Tata Steel, Tata Consultancy and Tata Motors are all in the top 10 of Forbes' India 40), Herbert Smith has reeled off a sumptuous list of prominent deals.

On 15 March the firm successfully concluded Essar's partnership terms with Vodafone over the ongoing development of India telecoms operator Hutchison Essar. This followed Vodafone's $11.1bn (£5.7bn) acquisition of Hutchison Telecommunications' stake in the mobile telecoms joint venture Hutchison Essar on 11 February. Link-laters represented Vodafone, while Hutchison was advised by Freshfields Bruckhaus Deringer.

Such deals are eagerly mopped up by top City firms but the likes of Freshfields, Herbert Smith and Linklaters remain hindered by a notoriously restrictive Indian legal market – save for the odd liaison office operated by firms such as Ashurst – and there is a growing clamour for de-regulation.

Until recently, the global investment banks have had to operate joint ventures in India with local institutions but, thanks to recent reforms, most major banks are currently moving to buy out their local joint venture partners and launch local offices.

Such liberalisation raises cautious hopes that the legal arena will follow suit. Parsons comments: "A country becomes a focus for international deals if you have the key advisers on the ground." Since becoming chairman of the firm's India practice in September 2006, Parsons flies out there once every two months, while Patel is on the ground at least once a month.

The fleeting visits are not ideal, according to Parsons. "We lawyers are fighting a rearguard action and highlighting the example of China, which shows that competition does not mean bad news for the incumbent firms," he says.

In China, firms such as Jun He Law Offices and King & Wood have flourished since foreign law firms first established (admittedly heavily restricted) offices there in the 1990s.

The Indian authorities are showing signs of softening their protectionist stance. India's respected finance minister, Palaniappan Chidambaram, recently declared his ambition to make Mumbai a major financial centre, a stance that is expected to lead to further liberalisation.

For that to happen without the presence of foreign lawyers would be impossible. New York, London and Hong Kong have teemed with lawyers of every creed and colour for decades. Clifford Chance (CC) finance partner Chris Wyman says: "You need the breadth of experience that the US and UK law firms can bring. It is not to knock the Indian firms, but they are much smaller and do not have such a full range of expertise."

Strictly speaking, Indian firms are prevented from having more than 20 equity partners, thus preventing the usual stampede for consolidation in most other key jurisdictions.

Though an increasing number of larger Indian firms are making positive noises regarding foreign competition, the Bar Council of India (BCI), the primary regulator for the country's legal profession, remains strongly opposed to any reform.

Earlier this month All India Bar Association (AIBA) chairman Adish Aggarwarla said the organisation had warmed to the idea of foreign firms entering India's legal market. However, this was effectively refuted by BCI chairman Jagannath Patnaik, who re-affirmed the council's long-held protectionist mantra.

With the majority of India's one million lawyers working as advocates in the magistrate's courts, there is a fear that foreign lawyers will obtain rights of audience and thus eat into the livelihood of the common practitioner.

"The large firms that are positioning themselves for a merger are irrelevant to the Bar Council of India because their views are completely different to 90% of the legal market, which are advocates," says David Roberts, a partner in Olswang's India practice.

He believes that the situation demands a sustained PR effort to convince the majority of the profession that foreign firms are not interested in advocacy, and that until that time there will be resistance from the BCI.

For UK firms such as Olswang, the picture remains complicated. But Olswang's experience in India shows that the country's appeal goes far beyond the usual suspects of top-tier London firms competing for big-ticket M&A and securities work.

Olswang in December 2005 advised on the first Indian company to list on London's Alternative Investment Market (AIM), Great Eastern Energy Corporation.

According to Roberts, though Indian companies are prevented from directly issuing shares on foreign exchanges, by way of a placing of global depositary receipts, the structure provided a fix to allow Indian companies to come to market in London.

The Indian Government now demands that private companies simultaneously list in Mumbai as well as AIM. Olswang's India initiative has until recently been led by consultant Toby Greenbury, who joined Mishcon de Reya in February. Mishcons is also active in the AIM market for Indian issuers.

But while Olswang continues to concentrate on AIM transactions emanating out of India and other matters such as inward investment, including property investment funds, it is now emphasising the need to develop stronger connections with India's leading law firms.

"There are three transactions that we have recently pitched on that came through two firms in India," Roberts comments, suggesting that these referral relationships are becoming mutually rewarding. "More and more it is becoming a case of two-way traffic," he says.

The firm now has an Indian lawyer, Rishi Bhatnagar, working in India as a consultant.

A very different strategy has been in evidence at Linklaters, which last year secured arguably the most audacious attempt to tap into the Indian market. Linklaters' strategy saw the London giant ally with a newly-formed Mumbai practice, Talwar Thakore & Associates.

Suresh Talwar recently retired from Indian firm Crawford Bayley & Co, before linking up with former AZB & Partners capital markets partner Shobhan Thakore to form the new firm in January. There are, however, no formal financial ties between the two firms – which would fall foul of Indian Bar rules.

Sandeep Katwala, head of Linklaters' India practice, has a longstanding relationship with Talwar, having worked on the greenfield development of Bangalore Airport some years ago. When he learnt of Talwar's intention to launch a new firm, Katwala indicated that the magic circle firm would support it with referral business.

"We never decided that we wanted a 'best friend' firm but, since January, we have worked with them closely," Katwala says. "It is a bit too grand to think of it as an initiative. We did not create it as such, but we enjoy working with these two individuals."

When Linklaters advised Vodafone on the acquisition of a controlling stake in Hutchison Essar, it teamed up with Talwar Thakore.

It is just one sign of Indian firms becoming more outward-facing. One of India's largest law firms, Fox Mandal, recently declared its intention to open an office in London.

"London is seen as the main hub for European and US business and we felt that to go out of India, as a first step we should have an office in London," says name partner Som Mandal. "It is a central place for reaching the US or other European countries."

Mandal says he is a strong supporter of foreign firms gaining entry into India and he believes that his firm's London opening could herald the start of a more formal reciprocal arrangement. "As a law firm, we have an open idea that if we are going into other countries, we should ask why other firms cannot open in our country," he says.

Despite the more welcoming message coming from India's commercial lawyers, the prospects for reform remain thin. Back in 1994, Ashurst opened a liaison branch in Delhi in the hope of market liberalisation. Thirteen years later, the firm is still waiting. As one partner at a major City firm says, the market is "constantly three years away from opening up". Such sentiments have been expressed annually for the past decade with nothing to show for it.

Given such uncertain prospects for reform, London firms have begun bulking up their Indian-qualified teams in London and Asian offices, rather than putting all their eggs in one basket.

Last year CC recruited corporate lawyer Sumesh Sawhney, a former partner of Indian firm Amarchand & Mangaldas & Suresh A Shroff. Similarly, Freshfields hired former Wadia Ghandy partner Nihar Mody last month.

At the junior end, Herbert Smith will in April interview Indian law graduates at the prestigious National Law School of India University in Bangalore. The firm has advertised in many of India's leading law schools and any potential recruits will be flown to Bangalore for the interview process.

With the potential of Indian corporate clients growing by the day, City firms have no intention of sitting back passively while the local market crawls toward reform. Should Herbert Smith's growing Indian contingent help to source more deals of the Tata Steel/Corus magnitude, London firms will regard the extra investment as worth every penny.