The Union Budget 2025 announced a revision of India’s Model Bilateral Investment Treaty (BIT) to make it more “investor-friendly”, marking a decade since the last model was adopted in 2015. This revision offers India an opportunity to align its investment treaty policy with “current global economic realities”, as well as address emerging concerns around investor protection, sovereign regulatory space, and dispute resolution.
What is Bilateral Investment Treaty (BIT) and its evolution in India?
BIT is often referred to as International Investment Agreements (IIAs), are legal tools that protect foreign investments by assuring investors certain guarantees against adverse actions by the host state. As of 2023, over 3,291 IIAs (including 2,831 BITs) have been signed globally (UNCTAD).
India’s BIT Landscape:
- India has signed 86 BITs, of which only 13 are currently in force (MEA, 2024).
- The 2015 Model BIT, adopted after adverse international arbitral awards (e.g., Vodafone, Cairn Energy cases), sought to balance investor rights with sovereign regulatory autonomy. However, India has struggled to negotiate new BITs based on this model. According to legal experts, no major capital-exporting country has accepted it fully.
Evolution of India’s Model Bilateral Investment Treaty (BIT)
| Phase & Period | Key Characteristics & Motivation | Notable Developments |
| Phase I: 1994–2011(Liberal, Investor-Centric Phase) | – Broad protections: Fair and Equitable Treatment (FET), Most Favored Nation (MFN), unrestricted ISDS. – Asset-based definition of investment. – Aimed to attract foreign capital in post-liberalization era | – First BIT signed with UK (1994). – 66+ BITs signed by 2011 |
| Phase II: 2011–2015 (Crisis and Reassessment Phase) | – Reassessment of treaty commitments due to rising ISDS claims. – Motivation: Protect regulatory autonomy and limit legal liability | – White Industries v. India (2011) – BIT-based claims by Vodafone and Cairn |
| Phase III: 2015–Present (Sovereignty-Oriented Model) | – Narrow FET clause aligned with customary international law. – No MFN clause. – ISDS allowed only after 5 years of exhausting local remedies. – Enterprise-based investment definition. – Curtail litigation risk and preserve policy space | – 2015 Model BIT introduced – India unilaterally terminated 58 BITs. – New BITs with Brazil, Belarus based on 2015 model. |
| Phase IV: 2021–2025 (Expected) (Reform and Balancing Phase) | – Revision underway to balance investor protection with sovereign rights. – Likely changes: Flexible ISDS, enhanced investor obligations, alignment with global best practices. – Improve investment climate, support “Ease of Doing Business” | – MEA-led review of 2015 Model BIT initiated in 2021. – Revised Model BIT expected by 2025 |
Key Features of the 2015 Model BIT
| Aspect | 2015 Model BIT |
| Fair and Equitable Treatment (FET) | Narrowly defined, aligned with customary international law |
| MFN Clause | Excluded to prevent importing favorable terms from third-party BITs |
| ISDS Mechanism | Permitted only after exhausting local remedies for 5 years |
| Scope of “Investment” | Based on characteristics (enterprise-based), not just assets |
| Investor Obligations | Included obligations for compliance with laws, environment, labor |
| Exclusion of Taxation | Tax matters kept out of ISDS jurisdiction |
| Transparency & Public Interest | Emphasized state’s regulatory rights, including for health, environment, and public order. |
What is the significance of BIT Revision?
1. Foreign Investment Promotion & Economic Growth: FDI into India grew from $16 billion in 2000 to $537 billion in 2023; similarly, Outward Direct Investment (ODI) rose from $1.7 billion to $236 billion (UNCTAD World Investment Report, 2023). A robust BIT framework encourages cross-border capital flows, enabling India to attract and protect both inbound and outbound investments. India’s ambitious goals under Amrit Kaal (Vision 2047) require legal infrastructure that bolsters investor confidence.
2. Balancing Investor Rights with Sovereign Regulatory Space: Post-2008 financial crisis and climate crises, host states globally are recalibrating investment treaties to allow for policy flexibility on issues like public health, environment, and taxation. The revised BIT offers an opportunity to “balance investment protection with the right to regulate”, as emphasized by the article.
3. Boost to Infrastructure and Employment: The India-EFTA FTA (March 2024) introduced a quantifiable commitment by EFTA states to invest $100 billion in India, generating 1 million direct jobs. Its investment chapter innovatively replaced ISDS with G2G consultation mechanisms. Model BIT revision can institutionalize such novel frameworks.
4. Reducing Treaty-Based Arbitrations: India has faced over 25 ISDS claims, costing billions in arbitration and compensation (e.g., Cairn award of $1.2 billion). Clearer, balanced BITs can reduce litigation and foster predictability.
5. Geopolitical Strategy: As India positions itself as a major player in global value chains (GVCs) and “Amrit Kaal”, it needs modern treaties to: attract high-tech foreign capital, enable ease of doing business and provide certainty to international investors.
6. Legal and Institutional Significance: BITs are legally enforceable instruments of international law. They strengthen the rule of law in investment governance. Balanced BITs preserve the “right to regulate” while ensuring investment protection.
What are the challenges in its implementation?
1. Legal Ambiguity & Investor Skepticism: The ELR clause and restricted definitions dissuade foreign investors. India’s failure to secure acceptance of its 2015 BIT model reflects its limited global legitimacy.
2. One-Size-Fits-All vs Dual Model Dilemma: Scholars like Rajesh Singh & Karamjeet Kaur propose “dual BIT models” – one defensive, one investor-friendly. However, this “horses for courses” strategy may undermine India’s credibility and consistency in international law, as investment flows are dynamic (e.g., India was a capital importer to UK in 1994 but a capital exporter by 2022).
3. Most Favored Nation (MFN) Clause Complexity: 2015 model excludes MFN, due to its misuse in treaty shopping. Yet, MFN is a fundamental principle of non-discrimination in international law, with origins dating to 17th century bilateral commercial treaties. The clause can support transparency and harmonize benefits across BITs.
4. ISDS Inconsistencies: Divergent ISDS access (defensive vs liberal models) weakens India’s stance in multilateral forums like UNCITRAL, and invites counter-arguments in negotiations. Mandatory Exhaustion of Local Remedies (ELR) for 5 years before initiating ISDS – seen as a barrier.
5. Fragmentation of India’s Treaty Network: Unilateral terminations post-2015, without replacement treaties, have left gaps in legal coverage for Indian investors abroad.
What should be the way forward?
1. Principled and Predictable BIT Framework: Integrate investor protections (fair and equitable treatment, ISDS access) with explicit regulatory carve-outs for: Public health, environmental protection (SDG-13), taxation. E.g. Reference, EU Model BIT, CETA, RCEP models.
2. Introduce Tailored MFN Clauses: Consider forward-looking MFN clauses with consultation requirements. Include safeguards against treaty-shopping, e.g., by excluding ISDS procedures from MFN coverage.
3. Innovate on Dispute Resolution: Emulate EFTA FTA’s G2G consultation model or multilateral investment court models under discussion at UNCITRAL.
4. Avoid Dual BIT Model Pitfalls: Maintain a single, nuanced model BIT that can be flexibly adapted through negotiation protocols, rather than creating inconsistent models. Support this with investment chapters in FTAs (as seen in EFTA).
5. Build Legal & Institutional Capacity: Strengthen India’s treaty negotiation teams through specialized training. Create a central database of Indian investor concerns abroad to better inform treaty content. E.g. Actively participate in UNCITRAL Working Group III (ISDS Reform) and OECD investment dialogues.
6. Public & Parliamentary Transparency: Table BITs for discussion and ratification like trade agreements to foster democratic accountability.
Conclusion
As India aspires to become a global investment hub during its Amrit Kaal, the revision of its Model BIT is both timely and strategic. It must strike the right balance between offering adequate protection to foreign investors and preserving the regulatory autonomy of the Indian state.
The revised BIT must reflect India’s dual role as both a capital importer and exporter, without compromising on its principled and consistent approach to international economic law.
| Read more- The Indian Express UPSC Syllabus- GS 3– Investment Models |
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