India Bilateral Investment Treaty 2025 introduction 

• The Union Budget 2025 unveiled a significant revision to India’s Model Bilateral Investment Treaty (BIT), marking a critical shift in the country’s approach towards foreign investments. 
• This revision aims to create a more investor-friendly environment while addressing critical issues around investor protection, sovereign regulatory space, and dispute resolution.
• As per, Chief Economic Adviser V Anantha Nageswaran, the new model text for bilateral investment treaty (BIT) will be better aligned to the demands of a dynamic global investment environment, while safeguarding India’s sovereign rights and regulatory space.

What is a Bilateral Investment Treaty (BIT)?

• Bilateral Investment Treaties (BITs), also known as International Investment Agreements (IIAs), are legal agreements between two countries aimed at providing protections for investments made by investors from one country into the other.
•  These treaties typically guarantee protections such as the right to fair treatment, protection from expropriation, and the ability to dispute investment-related matters through arbitration.

India’s BIT Landscape: Key Highlights

• As of 2023, over 3,291 IIAs, including 2,831 BITs, have been signed globally (UNCTAD). India has entered into 86 BITs, of which only 13 are currently in force (MEA, 2024). 
• The evolving nature of these agreements has seen India shift its approach in response to challenges faced with international arbitration, as highlighted by notable cases like Vodafone and Cairn Energy.

Evolution of India’s Model Bilateral Investment Treaty (BIT)

• • India’s approach to BITs has undergone several phases, each reflecting a shift in priorities and economic realities.

• Phase I (1994–2011): Liberal, Investor-Centric Approach

• • Key Features:

• Broad protections: Investors were given significant guarantees, including Fair and Equitable Treatment (FET) and Most Favored Nation (MFN) clauses.
• Unrestricted Investor-State Dispute Settlement (ISDS) mechanisms.
• Asset-based definition of investment.
• Motivation: To attract foreign capital during the post-liberalization phase.

• Notable Developments:

• India signed its first BIT with the United Kingdom in 1994 and most recently, two more bilateral investment treaties in 2024 with UAE and Uzbekistan. 

• Phase II (2011–2015): Crisis and Reassessment

• • Key Features:

• Growing concerns about the rising number of ISDS claims against India.
• Reassessment of treaty commitments to protect regulatory autonomy and limit legal liabilities.

• Notable Developments:

• White Industries v. India (2011) and Vodafone-Cairn cases brought about major reassessments.

• Phase III (2015–Present): Sovereignty-Oriented Model

• • Key Features:

• Narrow FET clause, aligned with customary international law.
• No MFN clause.
• ISDS allowed only after exhausting local remedies for five years.
• Enterprise-based definition of investments.
• Investor obligations: Included compliance with local laws and environmental standards.

• Notable Developments:

• India introduced the 2015 Model BIT.
• India unilaterally terminated 58 BITs to reinforce its sovereign rights.
• New BITs were signed with Brazil and Belarus based on the 2015 model.

• Phase IV (2021–2025): Reform and Balancing Phase

• • Expected Features:

• Revision of the 2015 Model BIT to better balance investor protection with sovereign regulatory space.
• Key focus on creating flexible ISDS mechanisms and enhancing investor obligations.
• Aiming to improve India’s investment climate and support Ease of Doing Business.
• Presently, India is negotiating a BIT with the UK, Saudi Arabia, Qatar, and the European Union (EU). 

• Notable Developments:
  • The Ministry of External Affairs initiated a review of the 2015 Model BIT in 2021.
  • The revised Model BIT is expected by 2025.

Key Features of the 2015 Model BIT

• The 2015 Model BIT was designed to reflect India’s growing concerns over sovereignty while still attracting foreign investments. Below are its key features:
  • Fair and Equitable Treatment (FET): Narrowly defined, consistent with customary international law.
  • MFN Clause: Excluded to prevent importing favorable terms from third-party BITs.
  • ISDS Mechanism: Permitted only after exhausting local remedies for 5 years.
  • Scope of Investment: Based on the characteristics of an enterprise rather than just assets.
  • Investor Obligations: Obligated investors to comply with local laws, including environmental and labor laws.
  • Exclusion of Taxation: Tax matters were kept out of ISDS jurisdiction.
  • Transparency & Public Interest: Emphasized the State’s regulatory rights, especially regarding health, environment, and public order.

Why is the BIT Revision Crucial for India?

• • The revision of India’s BIT framework is vital for addressing multiple facets of economic and diplomatic challenges:

• Boosting Foreign Investment and Economic Growth: The rise of FDI and Outward Direct Investment (ODI) showcases India’s increasing integration into the global economy. With FDI inflows rising from $16 billion in 2000 to $537 billion in 2023, BIT revisions will provide legal security to foreign investors, boosting investment.

• Balancing Investor Rights with Sovereign Regulatory Space: Post-2008 financial and climate crises, host states globally are recalibrating investment treaties. The revision offers India an opportunity to balance investor protection with the right to regulate, especially on crucial matters such as public health, environment, and taxation.

• Boost to Infrastructure and Employment: India-EFTA FTA (2024) introduced an innovative approach by replacing ISDS with G2G consultations, resulting in a $100 billion investment and 1 million direct jobs. The revised BIT can institutionalize such frameworks.

• Reducing Litigation and Treaty-Based Arbitrations: India’s exposure to over 25 ISDS claims has cost the country billions. By ensuring clearer, balanced BITs, India can reduce costly arbitrations and foster predictability for investors.

• Geopolitical Strategy: As India positions itself in global value chains (GVCs), Amrit Kaal, and a $10 trillion economy, it needs treaties that attract high-tech capital while providing certainty for international investors.

• Legal and Institutional Significance: BITs strengthen the rule of law and provide legal enforceability in international disputes, ensuring that India maintains its sovereign rights while attracting foreign investment.

Key Challenges in the Implementation of BIT Reforms

• Despite the progress, India faces several challenges in the successful implementation of the revised BIT:
• Legal Ambiguity and Investor Skepticism: Investor confidence may be undermined due to the ELR clause and restricted definitions, as seen in the failure to secure full acceptance of the 2015 model.
• One-Size-Fits-All vs Dual Model Dilemma: Proposals for “dual BIT models” may undermine India’s credibility in international law, given the dynamic nature of investment flows.
• MFN Clause Complexity: While the 2015 model excluded MFN to avoid treaty shopping, MFN is a key principle of non-discrimination in international law, which could enhance transparency.
• Inconsistencies in ISDS Mechanisms: Mandatory exhaustion of local remedies (ELR) for 5 years can be perceived as a barrier, especially in ISDS arbitration.
• Fragmentation of India’s Treaty Network: Unilateral terminations of BITs have left gaps in legal protection for Indian investors abroad.

Way Forward

• Develop a Principled and Predictable BIT Framework: Integrate investor protections with regulatory carve-outs for public health, environmental protection, and taxation, modeled on EU and RCEP BITs.
• Tailored MFN Clauses: Consider forward-looking MFN clauses with safeguards to prevent treaty shopping and consultation requirements.
• Innovate Dispute Resolution Mechanisms: Emulate models like EFTA FTA’s G2G consultations or multilateral courts under discussion at UNCITRAL.
• Avoid Dual BIT Models: Maintain a single, nuanced BIT model adaptable through negotiation, ensuring consistency and flexibility across treaties.
• Build Legal & Institutional Capacity: Strengthen treaty negotiation teams and create a central database of concerns to inform treaty formulation.
• Promote Public & Parliamentary Transparency: Ensure that BITs undergo democratic scrutiny, like trade agreements, before ratification.