Latest News
Evolution of India's Bilateral Investment Treaties and Implications for Foreign Investment
Evolution of India's Bilateral Investment Treaties and Implications for Foreign Investment
A Bilateral Investment Treaty (BIT) is a legally binding agreement designed to safeguard investments made in a target nation by investors from two or more sovereign governments. India and the UK signed the first Bilateral Investment Treaty (BIT) in 1994 to draw in, reward, and optimise foreign investment. There were notable parallels between the 1994 India-UK BIT and the 2003 Indian Model BIT, with the latter emphasizing "foreign investor protection" instead of "State regulatory powers." As an "investor friendly" model BIT, it served as the foundation for India's subsequent BIT negotiations.[1]
The 2003 Model BIT required fair and equal treatment of investments and returns in the territory of the other Contracting Party, acknowledging the promotion and reciprocal protection of investment for investors. It also had provisions guaranteeing judicial review or independent evaluation of the investment's valuation. India signed more than 80 BITs; 72 of them were put into effect before 2011. A BIT was only used against an Indian Party once, and that case was resolved out of court without an international arbitration award being granted. That was in 2011. To balance the interests of developed and developing nations, BITs can be viewed as an international regulatory system for corporate governance. This article looks at how changes in international investment arbitration in recent years have affected India's regulatory framework for investment arbitrations.[2]
With the implementation of the 2016 Model BIT, India started renegotiating its bilateral investment treaties (BITs) with over 58 nations, including 22 countries in the European Union. The administration stated that it intended to renegotiate previous BITs and that, by March 31, 2017, it would unilaterally terminate a BIT if the other party failed to revise their treaties within a year. Due to India's efforts to boost international Direct Investment (FDI), such as the "Make in India" program and numerous FDI relaxations in its domestic legislation, would send confusing signals to international investors.
With a total foreign direct investment (FDI) of €70 billion from April 2000 to March 2017, the European Union is India's biggest commercial partner and accounts for about 25% of all investments in the country. Both the EU nations and India would suffer significant economic losses if the BIT were to be terminated. India and the EU have been in talks on a Trade and Investment Agreement since the October 2017 EU-India Summit.
To resolve any uncertainties in tribunal interpretation, India has requested that Joint Interpretative Statements be created with the other 25 of the 83 nations. In the previous quarters, business confidence in India fluctuated little, but in the second quarter of four years from 2015 to 2018, there was a noticeable consistent yearly growth in business confidence. According to the report, Modifications to the Model BIT, particularly to the dispute resolution procedures, may help increase foreign direct investment into India. Therefore, the significant adjustments made by the government through the 2016 Indian Model BIT regime will improve India's current regulatory and corporate governance framework and lessen the likelihood that future investment disputes will arise between investors and the Indian government or Indian corporations.[3]
The article assesses India's foreign investment policy between the years 2003 and 2016, with a particular emphasis on the nation's losses from awards in international investment arbitration. The article emphasises the necessity of tackling problems like corruption and retroactive taxes as well as the need for a more regulatory approach to India's current IFAs. India has worked to enhance its international dispute settlement mechanisms and address weaknesses in its investment treaty regime. Every quarter, India's standing in terms of investor confidence rises even with more stringent regulations. This argues that although India's robust regulatory framework helps it prevent significant losses and safeguard its economic interests, caution is required when renegotiating new BITs or BIPAs with other countries to keep India's standing as "sufficiently investor-friendly" in comparison to other countries.
References
[1] Shrivastava, Anujay, and Kaustaubh Kapoor. "Significance of international investment arbitration in India's efforts toward instituting a robust regulatory regime." Indian J. Int'l Econ. L. 11 (2019): 82.
[2] Ranjan, Prabhash. "India and bilateral investment treaties—a changing landscape." ICSID Review 29.2 (2014): 419-450.
[3] Inbavijayan, Veeraraghavan, and Kirthi Jayakumar. "Arbitration and investments-initial focus." Indian J. Arb. L. 2 (2013): 33.
- India's Model BIT of 2003 emphasized foreign investor protection, shaping subsequent BIT negotiations.
- Renegotiation of BITs with over 58 nations, including EU members, aimed at boosting FDI, but posed risks of confusion.
- Modifications in the 2016 Model BIT regime aimed to enhance India's regulatory framework, potentially increasing FDI.
