New Model Bilateral Investment Treaty: India Plans to Shorten the Wait Before Global Arbitration
The Union Cabinet is expected to soon decide on a new model Bilateral Investment Treaty (BIT). A model BIT is a standard template that India uses as its starting point when it negotiates investment treaties with other countries.
The draft has been finalised by the Ministry of Finance and sent to the Cabinet for approval. It replaces the template approved in December 2015 (often called the Model BIT 2016).
The biggest proposed change: the current template makes a foreign investor first fight its case in Indian courts and offices for at least five years before it can go to international arbitration (a private, neutral tribunal). The new model is expected to cut this waiting period sharply; officials have earlier indicated about two years.
The rule that investors must try Indian remedies first (called exhaustion of local remedies) will stay. Only the time period is expected to become shorter.
Taxation will stay outside the treaty. The government's position is that Parliament has the sovereign right to decide tax policy, so tax disputes cannot be taken to treaty arbitration.
The Union Budget 2025-26 had announced that the Model BIT would be revamped to make it more investor-friendly. India is close to concluding investment treaties with the UK, the European Union, Oman and Qatar, and has begun talks with Canada, based on the updated framework.
Bilateral Investment Treaty (BIT) and India's Model BIT (2016)
A Bilateral Investment Treaty (BIT) is an agreement between two countries to protect the investments that companies of one country make in the other. It promises fair treatment, protection from unfair seizure of property, and freedom to move money in and out. If the host country breaks these promises, the investor can take the dispute to international arbitration instead of relying only on the host country's courts. India's current template for such treaties is the Model BIT, whose text was approved by the Union Cabinet in December 2015.
The new model BIT going to the Cabinet is the revamp promised in the 2025-26 Budget. By shortening the five-year local remedies rule (likely to about two years) while keeping tax out, India wants to reassure foreign investors and also protect Indian companies investing abroad, without giving up its right to regulate. Treaties with the UK, the EU, Oman and Qatar are expected to follow this new template.
Investor-State Dispute Settlement (ISDS)
Investor-State Dispute Settlement, or ISDS, is a system that lets a foreign company sue the government of the country where it has invested. The case is not heard in that country's ordinary courts. Instead, it goes to a panel of private international judges called an arbitral tribunal. The right to do this comes from an investment treaty (like a BIT) signed between the two countries. Think of it like a cricket match between two countries where a neutral umpire from a third country is called in, so neither side can complain that the umpire is biased.
The five-year local remedies rule was India's main safeguard against the flood of ISDS cases it faced after White Industries, Vodafone and Cairn. The new model BIT aims to shorten this wait, which should make the ISDS route more usable for investors, while tax disputes stay fully outside arbitration. It is an attempt to balance investor confidence with India's right to regulate.
- Current Model BIT: text approved by the Union Cabinet in December 2015 (commonly called Model BIT 2016)
- Current rule: exhaust local remedies for at least 5 years before international arbitration (Article 15), plus 90 days' notice before submitting a claim
- Proposed: local remedies period to be shortened, indicated at about 2 years; local remedies rule itself retained
- Taxation to remain outside the new BIT framework
- Revamp of the Model BIT announced in the Union Budget 2025-26
- Treaties nearing conclusion: UK, European Union, Oman, Qatar; negotiations started with Canada
- India-UAE BIT (in force 2024): local remedies period of 3 years
- India has signed around 90 BITs over time; most older BITs terminated from 2016–17
- India is not a member of the ICSID Convention (1965)