India considers revising its investment treaty model

Source: The post India considers revising its investment treaty model has been created, based on the article “India needs a model BIT that balances investment protection with the right to regulate” published in “Indian Express” on 16 April 2025. India considers revising its investment treaty model.

UPSC Syllabus Topic: GS Paper2-International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Context: India plans to revise its 2015 model Bilateral Investment Treaty (BIT) to make it more attractive for foreign investors. This reflects the government’s recognition that the current model has failed to gain international acceptance over the past decade.

For detailed information on Bilateral Investment Treaties (BITs): India’s Approach and Concerns read this article here

Idea of Dual BIT Models

A proposal suggests adopting two distinct BIT frameworks:

1. One for situations where India is a capital importer, giving the host state greater regulatory control and granting fewer rights to foreign investors.
2. Another for scenarios where India is a capital exporter, offering stronger protections to Indian investors and limiting host state regulation.
   3. This idea is based on the belief that investment relationships vary by country and should be handled accordingly.

Problems with a Dual-Model Strategy

1. Changing Investment Roles: A country’s capital position is not fixed. For example, India signed a BIT with the UK in 1994 as a capital importer, but by 2021–22, India had become a major capital exporter to the UK. This dynamic nature makes it hard to apply a fixed model.
2. Mixed Investment Flows: Many relationships involve both capital inflows and outflows. This overlap makes it impractical to label countries strictly as capital exporters or importers.
3. Legal Inconsistency: Two different treaty models would lead to conflicting legal principles. For instance, one may require investors to exhaust local remedies for five years before arbitration, while the other allows quicker access to ISDS.
4. Diplomatic Risks: Inconsistent treaty practice could damage credibility in international negotiations. It may be used against the country in bilateral talks or in multilateral platforms like UNCITRAL, which is currently discussing ISDS reform.

Clarification on the MFN Clause

1. A concern was raised that the Most Favoured Nation (MFN) clause undermines the negotiated balance of BITs. However:
2. The MFN clause originated in bilateral commercial treaties as early as the 17th and 18th centuries, not just in multilateral agreements.
3. It supports fairness by ensuring equal treatment among treaty partners. Any benefit granted to one party is extended to others, maintaining a level playing field.

Conclusion

The issue is not the number of BIT models but the quality and balance of the model. A single, consistent BIT framework should balance investment protection with the state’s right to regulate. This would improve legal clarity, boost investor confidence, and enhance the country’s global credibility.

Question for practice:

Discuss the challenges and implications of adopting a dual-model Bilateral Investment Treaty framework for India.