New Bilateral Investment Model

Source: Indian Express
GS II & III: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests, and Investment Models.

Overview

1. News in Brief
2. Background
3. Key features of the proposed BIT model
4. Significance of the proposed changes

Why in the News?

The Union Government is considering significant changes to its Bilateral Investment Treaty (BIT), safeguarding India’s regulatory sovereignty and legal system.

News in Brief

• Amid the recent debate on various issues with Bilateral Investment Treaty (BIT), the centre is considering  tailoring them according to engagement with countries.
• The review  follows concerns that the 2016 BIT model was too restrictive and may have affected investor confidence.
• The proposed model makes investment agreements more balanced and protect foreign investments.

Background

• 1993 – First BIT model introduced
• 2015 – New BIT model approved.
• 2016 – Adopted the BIT model approved in 2015.
• 2025-2026 – In the Budget, announced the revamping of the 2016 model to make it more investor-friendly and attract sustained foreign investment.
• 2026- Proposed a new BIT model that seeks to balance between investor protection and national interests.

Key features of the proposed BIT model

• Two-Year Local Remedy Requirement
  • • • Foreign investors must first seek remedies through Indian courts or legal mechanisms for at least two years before initiating international

        

        arbitration.

      • To strengthen confidence in India’s judicial institutions and protect sovereignty of the country.
• No Most-Favoured Nation (MFN) Clause
  • • • The most-favoured nation clause is a provision in investment treaties which requires a country to extend the same trade concessions granted to one trading partner to all other trading partners covered under the agreement.
      • This can undermine policy autonomy.
      • Under the new model each BIT will operate independently.
      • Foreign investors can only claim rights specifically mentioned in their own treaty.
      • They can not import better provisions from India’s treaties with other countries.
      • To prevent treaty shopping, reduce legal disputes and arbitration claims, and protect India’s regulatory powers.
• Taxation kept outside investment pacts
  • • • Taxation will remain outside the scope of investment treaties.
      • Tax related issues will be governed by domestic laws and separate tax agreements.

Significance of the proposed changes

• Protects foreign investments while preserving India’s regulatory autonomy and legal sovereignty.
• Encourages use of domestic legal remedies and promotes confidence in India’s judicial and dispute-resolution mechanisms.
• Reduces risk of expensive international arbitration cases against India.
• Provides greater policy flexibility in taxation.
• Reduces ambiguities and conflicting interpretations, and facilitates a more predictable investment environment.

Concerns

• Absence of MFN protection may make India’s BITs less attractive compared to those of some competing investment destinations.
• May affect India’s competitiveness in attracting foreign investment if not balanced carefully.

The proposed Bilateral Investment Treaty (BIT) reforms aim to create a balanced investment framework , that can support ongoing Free Trade Agreements (FTAs) negotiations and help to attract quality foreign investments.

UPSC Prelims Practice Question

Consider the following statements regarding Bilateral Investment Treaties (BITs)

1. A BIT primarily aims to protect and promote investments between two countries.
2. The Most-Favoured Nation Clause allows investors to claim non-discriminatory treatment among trading partners.
3. The newly proposed BIT model seeks to include taxation within the provisions of the investment pacts.

Which of the above statements is/are incorrect?

a)1 and 2 only

b) 2 and 3 only

c) 3 only

d) 1,2, and 3

Answer: c) 3 only

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