India Overhauls Investment Treaty Model to Attract Global Capital
NEW DELHI — In a major policy pivot aimed at boosting foreign direct investment (FDI) and addressing long-standing grievances of international corporations, the Indian government is preparing to significantly amend its model Bilateral Investment Treaty (BIT).
According to sources familiar with the discussions, the Finance Ministry has moved a cabinet note proposing a major reduction in the "exhaustion of local remedies" period. Currently, foreign investors are required to navigate the Indian legal system for five years before they can trigger international arbitration. The proposed amendment aims to cut this timeframe to just one year, a move expected to provide greater legal certainty and confidence to global players.
Expanding the Definition of Investment
Beyond shortening the waiting period for dispute resolution, the government is looking to modernize the scope of what constitutes an "investment." Proposals currently under consideration seek to transition the definition from an enterprise-based model to an asset-based one. This change would explicitly include shares and equity instruments held for a duration of five years or more, offering clearer protections for portfolio and strategic investors alike.
The government is also working to integrate specific "carveouts" to protect national interests. These provisions would shield key policy areas from arbitration, such as government subsidies, local administrative measures, and compulsory licensing—the latter of which is critical for maintaining public health mandates, such as the waiving of patent rights during medical emergencies.
A Decade of Evolution
The initiative marks a significant departure from the government’s stance in 2015. Following a series of investor-state dispute settlement (ISDS) claims—most notably the loss in the White Industries case—India unilaterally terminated a large number of its existing BITs to better protect its regulatory sovereignty. While this helped the government avoid aggressive litigation, it also acted as a hurdle in trade negotiations, with many nations expressing reservations about the lack of robust dispute resolution mechanisms.
Recent data from the UNCTAD database underscores this friction; since 2018, only six countries—including the UAE, Brazil, Israel, and Uzbekistan—have successfully concluded BITs with India. While some recent trade agreements, such as those with EFTA nations and the UK, have moved toward state-to-state obligations rather than investor-state arbitration, the government now acknowledges that a more flexible model BIT is essential to sustain long-term economic growth.
Balancing Protection and Progress
Economic Affairs Secretary Anuradha Thakur recently confirmed that the government would soon seek cabinet approval for the revamped model. While the overhaul is designed to woo international investors, officials maintain that the new framework will also ensure reciprocal protections for Indian investors operating abroad.
By streamlining the path to international arbitration and clarifying investment definitions, New Delhi is signaling a pragmatic shift—aiming to strike a balance between safeguarding national policy space and fostering a business-friendly environment capable of competing for global capital.
