India’s model BITs – Bilateral agreements

Source: The post India’s model BITs has been created, based on the article “Bilateral agreements: India must align its treaties with best global practices” published in “Business standard” on 6th February 2024.

UPSC Syllabus Topic: GS Paper 2 – International relations- Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

News: The article discusses India’s challenges in negotiating bilateral investment treaties (BITs). These treaties protect investor rights, but India has struggled due to its strict investment rules.

What is India’s model Bilateral Investment Treaties (BITs)?

Bilateral Investment Treaties (BITs) are agreements between two countries that protect the rights of investors from each country. They set rules for investments and handle disputes.

India’s model BITs are characterized by:

Stricter Rules: They emphasize protecting India’s sovereign interests.

Local Remedies Requirement: Foreign investors must use local legal remedies for at least five years before seeking international arbitration.

Exclusion of Taxation Measures: Any taxation measures imposed by India are excluded from the BITs.

Absence of MFN Clause: The Most Favored Nation (MFN) clause is not included, which typically ensures equal treatment among investors.

Response to Past Rulings: This approach followed unfavorable rulings in cases like Vodafone, Cairn, and Devas, where India faced significant damages.

What issues is India facing with BITs?

Difficulty in Signing New Treaties: After cancelling 77 of 84 BITs, India has only signed four new ones in nine years. Of the four agreements – with Brazil, Kyrgyzstan, Taiwan, and Belarus – the first two are not yet in force.

Investor Deterrence: The strict Model BIT framework discourages foreign investors.

Legal Vulnerability: Existing BITs with sunset clauses expose India to legal actions for 10-15 years after treaty lapses.

Impact on Indian Investors Abroad: Lack of BITs affects companies like Tata, hindering their overseas investments, such as the $5 billion electric car battery factory in the UK.

Slow Judicial Process: The Indian legal system’s pace complicates BIT negotiations and hampers investor confidence.

What should be done?

To improve its BIT strategy, India should adopt a more flexible approach, learning from global best practices. This includes revising the Model BIT to balance sovereign interests and investor rights and developing an international arbitration center to boost investor confidence and attract more foreign investment.

Question for practice:

Discuss the key features of India’s model Bilateral Investment Treaties (BITs) and their implications for foreign investors and India’s sovereign interests.