The Finance Ministry’s promised revamp of the model Bilateral Investment Treaty (BIT) to make it more “investment friendly” may include relaxed rules such as shorter local remedies exhaustion period before investors are allowed to seek international arbitration and a broader definition and scope of investment protection, sources said.
The Commerce & Industry Ministry has already given some recommendations to the Finance Ministry on the measures to be tweaked to make the model BIT more acceptable to other countries based on its interactions with foreign governments and investors, a source said.
“I think we will wait for the Finance Minister to spell out what she has in mind. India doesn’t make any policy based on somebody else’s demands. We are open to ideas and suggestions. After that, whatever is of national interest will prevail,” Commerce Minister Piyush Goyal told businessline when asked about what changes the government had in mind.
In her Budget speech on Saturday, Finance Minister Nirmala Sitharaman said the current model BIT will be revamped and made more investor friendly to encourage sustained foreign investment. This was largely in recognition of the fact that the model BIT, approved in 2016 following adverse arbitration rulings in high-profile cases such as Cairn Energy and Vodafone, was seen as too restrictive by India’s trading partners.
Leveraging FTAs
“Revamping India’s BIT is also likely to increase India’s leverage in the Free Trade Agreements it is negotiating with various partners including the UK and the EU, which had also been pushing for less restrictive conditions,” the source said. India had unilaterally terminated its Bilateral Investment Protection Agreements (BIPAs) with 77 countries, including the European Union, and asked them to renegotiate based on the model BIT but not too many were keen.
“There is an expectation that the Finance Ministry may reduce the number of years that foreign investors need to wait looking for a local remedy to their dispute before they can go for international arbitration, which is at present fixed at five years. The expectation is based on the BIT that India has already signed with the UAE last year,” the source said.
The 2024 India-UAE BIT has reduced the time period to pursue local legal remedies to three years.
It also clarified that this requirement is met if local remedies are pursued within the stipulated three-year time, irrespective of any ongoing proceedings or pending appeals.
Moreover, the India-UAE BIT explicitly includes portfolio investments, which are excluded under the model BIT.
“Based on the India-UAE BIT and the demands made by other partners, it can be hoped that the scope of investment protection would be widened,” the source said.
The model BITs exclusion of key investor protections — such as ‘fair and equitable treatment’ and Most-Favoured Nation status — left India with an investment treaty framework that was out of sync with global best practices, said Ajay Srivastava from GTRI.
