Model BIT agreement by India, Issues raised by West and Implications on FDI

Model BIT agreement by India, Issues raised by West and Implications on FDI


What is Bilateral Investment Treaty(BIT)?

● Agreement with terms and conditions for private investments by nationals and companies of one state in another state

● Investments with fair and equitable treatment

● Protects against state expropriation

● Investors could take recourse to international arbitration – Investor State Dispute Settlement (ISDS)


● Foreign Exchange Regulation Act(FERA) came into force in 1974

● According to this a foreign company has to convert foreign equities into minority

holdings of 40%. – many foreign companies quit the country

● In 1991, India started with economic reforms and brought FEMA, 1999

● India started signing BITs – first signed with UK in 1994 – continued unabated till 2010 (83 countries) – based on Indian Model BIT of 1993

What are the problems with old BIT?

● Not much emphasis on protection

● Had vague definitions and posed problems for India.

● It was also considered a pro-State document, heavily favouring the host state. Due to this, it created a problem for India to renegotiate the existing BITs with 73 different countries.

● Further, the language of the earlier draft was that it inhibited India to negotiate BITs favourable to its own investors.


● Acc to UNCTAD, Total of 17 known investor-state dispute settlement (ISDS) cases were filed against India by the end of 2015.

● India has suffered loss / defeat in BIT related disputes in White Industries Case.

Cairn Energy has also dragged India in another case related to India-UK BIPA.

Features of New Model BIT, 2016:

The draft is based on 260th report of Law Commission of India on the Draft Model Indian Bilateral Treaty. Last year India unilaterally issued BIT termination notice to 58 countries. So from 1st April, 2017 these countries don’t enjoy BIT protection for their new investments.

● Protection of the investment as the main objective – not only foreign investment but also domestic investments

● put in place a clear scope of National Treatment, Non-Discriminatory treatment, Transparency, Investor Obligations, Corporate Social Responsibility etc

● ISDS provision is there – but local remedies must be exhausted before interns arbitration

● limits the power of the tribunal to award monetary compensation alone

● Excludes govt procurement, taxation, subsidies, compulsory licensing and national security to preserve the regulatory authority of the government

What are the concerns raised by the west wrt new model BIT?

● Tilt towards states rights to regulate

● EU-Canada CETA has MFN( most favoured nation) clause which is the cornerstone for non discrimination in international economic relations- missing in Indian Model BIT

●  ‘Exhaustion of local remedies’ – mandates foreign investors to litigate in domestic courts for 5 yrs before international arbitration

● Exclusion of taxation – a clear indication of the Government’s reaction to various disputes with firms like Vodafone, Nokia,and Cairn on tax-related matters. BIT and FDI flow:

● Acc to a study, more than two-thirds of investment inflows to India between 2001 and 2013 came from BIT partners, and eventually concluded that BITs “have contributed to rising FDI inflows by providing protection and commitment to foreign investors contemplating investment in India”.

● new BIT model may possibly make investors more uneasy about doing business in India in the short run, but steps like FDI automatic route, GST will likely to ease FDI flow

● Till the new BITs are renegotiated its a pullback for investors to invest in India without investment protection

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