India’s BIT Framework

Source: The post India’s BIT framework has been created, based on the article “Why India needs a forward-looking approach to Bilateral Investment Treaties” published in Indian Express on 10th February 2024.

UPSC Syllabus Topic: GS paper 2 – International Relations – Bilateral, regional and global groupings and agreements involving India

News: Finance Minister Nirmala Sitharaman announced plans to negotiate new Bilateral Investment Treaties (BITs) to increase foreign investment. India’s BIT Framework

This is important because India’s previous bilateral treaties have been decreasing, especially after the 2016 Model BIT, which changed how India deals with foreign investments.

Evolution of India’s BIT framework

India began making BITs in the mid-1990s to protect and encourage foreign investments. The first treaty was signed with the UK in 1994.

By 2015, India faced 17 BIT claims, including high-profile disputes like the Cairn Energy Plc case, leading to substantial awards against the Indian government. This scenario prompted a reevaluation of the 1993 BIT model.

In response, India adopted the 2016 Model BIT and terminated 68 of its 74 treaties, seeking renegotiation based on this revised model.

This new model was stricter and required foreign investors to first exhaust all local remedies before international arbitration could be pursued.

What were The Impacts of 2016 Model BIT on Investments?

Significant decrease in FDI equity inflows. A 24% decline was registered during April-September 2023.

Total FDI contracted by15.5%.

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Steps Taken by India Towards India’s BIT Framework

FTA with UK: India is discussing a free trade agreement (FTA) with the UK, which includes easier ways to solve disputes without the need for local court decisions first.

Parliamentary committee recommendations: In 2021, recommendations were made for timely dispute resolution, development of local arbitration expertise, and regular treaty review to align with global best practices.

What Should be Done?

To achieve its goal of becoming a $5-trillion economy, India needs to attract and keep foreign investments. This requires updating its BIT strategy to make it more welcoming while protecting national interests.