India is contemplating a departure from the template for bilateral investment treaties (BIT) it adopted in 2016 after terminating most of the previous treaties. This potential change in approach comes as India negotiates investment treaties alongside free trade agreements (FTAs) with key trading partners like the UK and EU. These partners are seeking stronger investment protection and have expressed objections to the 2016 model BIT.
A senior official, aware of the development, indicated that the 2016 model bilateral investment treaties may not be suitable given the changes that have occurred since its adoption. The official noted that there have been shifts in the geopolitical landscape and that FTAs are being renegotiated for better terms with partner countries, which will likely result in a different model BIT from the one proposed in 2016. The new model, once decided upon, will require the approval of the Cabinet.
The 2016 model BIT was introduced to replace old model texts framed in 1993 and included provisions such as “exhaustion of local remedies,” which emphasized state rights over investor rights. However, the number of BITs signed by India declined after 2016, impacting the pace of foreign direct investments (FDI).
The European Union (EU) and the UK, two of India’s trading partners, have proposed different mechanisms for resolving investment-related disputes. European Commissioner for Trade Valdis Dombrovskis emphasized the need for “proper investment protection” and mechanisms to resolve disputes to attract foreign investment, especially as India seeks to become a manufacturing hub and integrate into global value chains.
An ICRIER working paper on the impact of BITs on FDI inflows into India noted that while India has focused on soliciting foreign investment through improved business rankings, such efforts may not be sufficient to encourage substantive FDI. The paper highlighted that overall investor protection is positively linked to foreign investment flows.
The need for efficient dispute resolution mechanisms is underscored by India’s ranking of 163 out of 190 countries in the World Bank’s ‘Ease of Doing Business 2020’ report for enforcing contracts, which takes 1,445 days and 31% of the claim value for dispute resolution. Delays in dispute resolution can impact investor confidence and FDI inflows.
Queries sent to the commerce and finance ministries for further information remained unanswered at the time of writing.
