India reviewing bilateral investment treaty overhaul to boost foreign investment: Official
The government is reviewing an overhaul of India's Model Bilateral Investment Treaty (BIT), with a decision expected from the Union Cabinet on the revised framework
The review comes as India negotiates new investment pacts with several developed countries
Industry bodies have sought faster dispute resolution mechanisms for foreign investors as part of the revised model
The stated objective is to make India's investment treaty regime more competitive in attracting foreign direct investment (FDI) relative to peer economies
India's Model Bilateral Investment Treaty (2016) — Origins and Key Restrictive Features
A Bilateral Investment Treaty (BIT) is a reciprocal agreement between two countries to promote and protect investments made by investors of one country in the other, typically including an Investor-State Dispute Settlement (ISDS) clause allowing investors to sue host governments before international arbitral tribunals.
Key Details
- India adopted its current Model BIT in December 2015 (effective 2016), replacing the investor-friendly 2003 Model BIT, after India lost or faced adverse rulings in over a dozen ISDS cases
- The 2016 Model requires foreign investors to exhaust local (domestic) legal remedies for five years before initiating international arbitration — widely criticised by investors as excessively restrictive
- It narrowed the definition of "investment" to an enterprise-based (not asset-based) test, excluded taxation measures from treaty coverage, and removed the Most Favoured Nation (MFN) clause
- Following adoption of the 2016 model, India terminated most of its older BITs (reports place the count of countries affected between roughly 58 and 77) and sought to renegotiate them under the new template, causing a sharp decline in India's active BIT network
The government's review targets precisely these restrictive features — especially the long local-remedies exhaustion period — that industry bodies and prospective treaty partners have cited as deterrents to signing new BITs with India.
The White Industries v. India Case (2011) — The Catalyst for India's Defensive BIT Model
The current restrictive Indian Model BIT traces its origin to India's loss in White Industries Australia Ltd. v. Republic of India (UNCITRAL award, 2011), where a tribunal held India liable under the India-Australia BIT for failing to provide "effective means" of enforcing an arbitral award due to prolonged Indian court delays.
Key Details
- The tribunal used the "effective means" standard, imported via the MFN clause from the India-Kuwait BIT, to find that India's judicial delays violated its treaty obligations
- This and subsequent adverse rulings (e.g., cases brought by Vodafone, Cairn Energy, and others involving retrospective taxation) prompted India's shift toward a more state-protective treaty model
- The Cairn Energy arbitration (2020) resulted in an award against India of over $1.2 billion related to retrospective tax demands, later settled after India repealed the retrospective tax provision in 2021
The proposed easing of the 2016 model's restrictions reflects a policy recalibration — moving from the defensive, litigation-scarred posture of the mid-2010s toward a more balanced framework designed to attract capital without abandoning all investor-friendly protections.
India-UAE BIT (2024) as the Template for Recalibration
The Bilateral Investment Treaty between India and the UAE, signed in February 2024 and in force from August 2024, already softened several 2016 Model BIT provisions and is being cited as a precedent for the wider overhaul.
Key Details
- Reduced the local-remedies exhaustion period from five years (2016 Model) to three years
- Retained an asset-based (rather than enterprise-based) definition of investment with carve-outs for taxation, government procurement, and subsidies
- Excluded investments linked to corruption, fraud, or round-tripping from treaty protection, and barred third-party funding of investor-state disputes
- The overhaul reportedly under review would go further, proposing a shorter local-remedies window (around two years) and continued removal of the MFN clause, giving India flexibility to negotiate country-specific provisions rather than a rigid one-size-fits-all template
The India-UAE BIT functioned as an intermediate step between the restrictive 2016 Model and the current proposed overhaul, showing an incremental easing trend as India negotiates with developed-country partners such as the EU and UK, where investment chapters are a sticking point in ongoing free trade agreement talks.
- India's current Model BIT adopted: December 2015 (effective 2016); replaced the 2003 Model BIT
- Local remedies exhaustion period: 5 years under 2016 Model; reduced to 3 years in India-UAE BIT (2024); reportedly proposed at ~2 years in the current overhaul
- White Industries v. India: UNCITRAL award, 2011 — India held liable for "effective means" standard violation via MFN import from India-Kuwait BIT
- Cairn Energy arbitration award against India: over $1.2 billion (2020), later resolved after retrospective tax repeal (2021)
- India-UAE BIT: signed 13 February 2024 in Abu Dhabi; entered into force 31 August 2024
- India terminated BITs with roughly 58-77 countries between 2016 and 2019 after adopting the restrictive model (reports vary on exact count), sharply shrinking its active treaty network