Rework India’s investment treaty framework to attract FDI flows
Subscribe to enjoy similar stories. The Indian budget announcement of a revamped model Bilateral Investment Treaty (BIT) to make it more investor-friendly is a delayed acknowledgement of the framework having failed to achieve its core objectives. Since its adoption in 2015, India has signed agreements with only five countries—Belarus (2018), Kyrgyzstan (2019), Brazil (2020), the UAE (2024) and Uzbekistan (2024), highlighting challenges in securing BITs with key trade partners and attracting foreign direct investment (FDI) flows.
Annual FDI inflows have only marginally increased from $60.2 billion in 2016-17 to $70.9 billion in 2023-24, reflecting global economic uncertainties and India’s restrictive investment treaty framework. Investors often cite legal unpredictability and cumbersome dispute settlement provisions as deterrents. The revamp presents an opportunity not just to tweak the treaty’s text, but to re-conceptualize India’s engagement with global investors to restore their confidence and enhance inflows.
Attracting foreign investment in an era of geopolitical fragmentation and restructured global supply chains requires a fine balance between investment protection and regulatory autonomy. India’s model BIT, drafted in reaction to a spate of adverse international arbitration rulings (Cairn Energy, Vodafone, etc) is excessively cautious. Its mandatory five-year exhaustion of local remedies before international arbitration, restrictive definition of investment and omission of the Most Favoured Nation (MFN) clause had made it unpalatable to foreign investors.
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