India’s Investment Treaty Revamp: What’s Next for FDI?
India’s Investment Treaty Revamp: What’s Next for FDI?
India is set to revamp its Model Bilateral Investment Treaty, a decade after its cautious 2015 version. Discover how past lessons and global shifts are shaping a new investor-friendly approach and what it means for forei
India is embarking on a significant journey to revise its Model Bilateral Investment Treaty (BIT), a move announced during the Union Budget 2025-26. This revamp comes nearly a decade after the 2015 Model BIT was approved, with the aim of making the framework more investor-friendly.
The 2015 Model BIT emerged from a specific historical context, shaped by concerns over investor-state arbitration, notably following the White Industries Australia Limited vs Republic of India award in 2011. This led to a cautious approach, including a narrower definition of investment, carefully framed protections, regulatory exceptions, and a requirement for investors to exhaust all local judicial and administrative remedies for at least five years before initiating treaty arbitration.
However, this cautious stance may have had unintended consequences. Economist Surjit Bhalla highlighted a dramatic decline in India's investment treaty network, from 73 treaties in force in 2015 to just eight by 2021. He attributes this sharp drop, in part, to provisions like the five-year litigation requirement, suggesting it weakened India's appeal for fresh foreign investment and called for a rethink of the model.
Since then, India's position has shown signs of evolution.
New-generation investment agreements with countries like the United Arab Emirates (UAE) and Israel reflect greater flexibility.
For instance, the India-UAE BIT and the India-Israel Bilateral Investment Agreement (which entered into force in July 2026) both shorten the local remedies period to three years, signaling a more adaptable approach to negotiations.
A Model BIT is not a rigid blueprint but a foundational document, outlining a state's desired protections and obligations while allowing for adjustments in individual treaties. The upcoming model should therefore provide a clear framework for future negotiations, yet retain enough flexibility for specific agreements.
The global investment landscape has also undergone significant changes. Organizations like the United Nations Trade and Development (UNCTAD) point to a global shift towards investment facilitation, cooperation, sustainable development, and more carefully defined investor protections, with less reliance on traditional investor-state dispute settlement (ISDS).
The United Nations Commission on International Trade Law (UNCITRAL) is actively exploring reforms to ISDS, including the possibility of a permanent tribunal and appellate mechanisms. India's revised Model BIT must respond to these evolving international norms, rather than merely revisiting the 2015 framework.
A crucial consideration for the new model will be whether to include the Most Favoured Nation (MFN) provision.
Currently, most of India's investment treaties exclude MFN clauses, which reduces the possibility of investors claiming better protection under other treaties.
However, if included, its scope must be clearly defined to prevent past issues, such as those seen in cases like Emilio Agustín Maffezini vs Kingdom of Spain, where an MFN clause was used to bypass local-court requirements. Recent treaty drafting trends also include expressly excluding dispute-settlement procedures from the scope of MFN clauses, a lesson India can incorporate.
This revamp offers India a unique opportunity to not just be a rule-taker but a rule-shaper in the international investment law arena.
