Context:
The 2015 model BIT of India did not deliver, since it came into existence with only five agreements (Belarus, Kyrgyzstan, Brazil, UAE, Uzbekistan). Foreign Direct Investment (FDI) inflows have only marginally increased from $60.2 billion (2016 17) to $70.9 billion (2023-24) because of investors’ citing legal unpredictability and restrictive dispute resolution mechanisms.
The current BIT framework adopted to avert the legal challenges as seen in the Cairn Energy and Vodafone cases turned out to be too restrictive for global investors.
Key Highlights:
- Excessive Dispute Resolution Requirements
- The five years’ local remedy exhaustion rule delays, deferring international arbitration for investors.
- Introducing a Fork in the Road (FITR) clause or providing a short period of exhaustion should further boost investor confidence.
- Narrow Definition of ‘Investment’
- It adopts a rigid enterprise based definition, with exclusion of intangible assets and portfolio investments as well as digital investments.
- This entails moving towards a broader asset based definition regarding attracting much of the investment in tech and the service sectors.
- Omission of MFN Clause
- India omitted MFN clauses to avoid ‘treaty shopping.’
- A clearly defined MFN clause provides same substantive protections with respect to MFN clause but not procedural benefits could make investments attractive.
- Weaknesses of Protection under ISDS
- Indian BIT leaves out the standard of Fair and Equitable Treatment in the lilt and which investors worry about.
- A balanced FET provision like EU treaties can protect an investor from arbitrary actions of the state while preserving regulatory autonomy.
- No ESG Provisions
- Most of the current BITs such as EU Canada and Morocco Nigeria embed environmental, social and governance commitments for sustainable investments.
- India should adopt a calibrated ESG approach to avoid excessive compliance burdens.
- Instability of Policies
- Uncertainty emerged following the abrupt termination of 77 BITs in 2016.
- The new framework shall ensure consistency and predictability through transparent stakeholder consultations.
India shall make changes in its BIT framework not bringing it back to the favor of investors, which was the scenario before the year 2016. A balance will boost credibility along with deep integration into the global value chains and rapid economic growth.
