A BIT of a reset, with a wider debate on India’s bilateral investment treaty
2-minute summary
India is currently evaluating and revising its 2015 Model Bilateral Investment Treaty (BIT), with the updated text expected to be placed before the Union Cabinet soon. The 2015 Model BIT was adopted after multiple foreign investors sued India for treaty breaches, leading to unilateral terminations of older treaties and a new framework that tilted heavily toward the state's right to regulate rather than foreign investment protection. Consequently, India has concluded only a handful of BITs over the last decade, deterred by capital-exporting nations concerned over strict regulatory barriers, judicial delays, and inadequate investor protections. Experts note that while discussions focus heavily on substantive and procedural legal changes, a critical missing element is the 'democratic deficit' in the treaty-making process—specifically, the lack of robust external stakeholder consultations, transparency, and parliamentary oversight. Drawing comparisons with countries like the UK, Australia, Norway, and Colombia, analysts argue that a successful reset of India's investment treaty regime requires structured external consultations, expert engagement, and enhanced democratic accountability to boost investor confidence while safeguarding national sovereignty.
Why it's in the news
India is revising its 2015 Model Bilateral Investment Treaty (BIT) to address limitations that hindered foreign capital inflows, prompting discussions on whether the treaty-making process suffers from a 'democratic deficit' due to limited public and parliamentary consultation.
Facts to remember
- India is currently evaluating and revising its 2015 Model Bilateral Investment Treaty (BIT).
- The 2015 Model BIT tilted heavily toward the state's right to regulate rather than foreign investment protection.
- India is notably not a member of the International Centre for Settlement of Investment Disputes (ICSID).
- Article 73 extends the executive power of the Union to treaty-making and international agreements.
- Article 253 empowers Parliament to make laws for implementing any treaty, agreement, or convention with any other country.
Background and context
Following a series of high-profile international arbitration losses and investor-state dispute settlement (ISDS) claims in the late 2000s and early 2010s (such as the White Industries case), India undertook a comprehensive review of its international investment agreements. In 2015, India adopted a new Model BIT. This model introduced significant changes, including narrowing the definition of investment, excluding taxation measures from the treaty's scope, requiring exhaustion of local judicial remedies for at least five years before initiating international arbitration, and eliminating 'Fair and Equitable Treatment' (FET) standards in favour of a narrower standard. While these changes aimed to protect India's regulatory space, they made capital-exporting nations hesitant to sign new BITs, resulting in the termination of older bilateral investment treaties and stagnant FDI treaty coverage, ultimately forcing the current push for a policy reset.
Constitutional provisions
- Article 73 — Extends the executive power of the Union to the matters with respect to which Parliament has power to make laws, encompassing the treaty-making power and conclusion of international agreements.
- Article 253 — Empowers Parliament to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country.
Committees and reports
- Law Commission of India - 260th Report — Examined the draft 2015 Model Bilateral Investment Treaty and made key recommendations on improving protections and arbitration mechanisms.
International organisations
- ICSID (International Centre for Settlement of Investment Disputes) — India is notably not a member of ICSID, which often influences its stance on investor-state dispute settlement (ISDS) mechanisms in Bilateral Investment Treaties.
- UNCITRAL (United Nations Commission on International Trade Law) — Provides the institutional rules under which many investment dispute arbitrations involving India are conducted.
Mains practice: Critically examine the limitations of India's 2015 Model Bilateral Investment Treaty (BIT) and discuss the imperatives for revising it to balance regulatory sovereignty with investor confidence.
Introduction:
India's adoption of the 2015 Model Bilateral Investment Treaty (BIT) marked a decisive shift from protecting foreign investors to fiercely guarding the state's sovereign right to regulate, following a spate of international arbitration cases. However, a decade later, this restrictive model has resulted in very few new BITs being signed.
Body:
• Limitations of the 2015 Model BIT: The model heavily tilts toward regulatory sovereignty, incorporating stringent investor-state dispute settlement (ISDS) prerequisites such as mandating the exhaustion of local judicial remedies for five years. Coupled with India's slow judicial system and regulatory risks, capital-exporting nations remain hesitant.
• Democratic Deficit in Treaty-Making: International economic agreements are negotiated largely behind closed doors by the executive and bureaucracy, bypassing formal parliamentary ratification or structured public consultations. This raises concerns regarding the 'all-affected principle' in democracy.
• Imperatives for a Balanced Reset: A revised BIT must strike a delicate balance. It needs to provide predictable substantive protections (such as transparent Fair and Equitable Treatment clauses) and efficient international arbitration avenues while preserving legitimate public policy space.
• Enhancing Institutional Accountability: Drawing from global best practices in the UK, Australia, and Norway, India should institutionalize external consultations with legal experts, industry stakeholders, and place draft treaties before Parliament to build democratic legitimacy.
Conclusion:
Revamping India’s Model BIT is critical not only for easing foreign capital inflows and integrating deeper into global value chains but also for ensuring transparency, robustness, and democratic accountability in executive policy-making.
Prelims practice questions
Q1. Which of the following constitutional provisions empowers the Union Parliament to enact laws to implement international treaties and agreements in India?
- Article 73
- Article 356
- Article 131
- Article 253
Answer: D. Article 253 of the Indian Constitution grants Parliament the power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement, or convention with any other country.
Q2. The term 'democratic deficit' in the context of international economic treaties primarily refers to:
- The lack of universal adult franchise in developing nations
- The failure of international organizations to enforce democratic norms among member states
- The deficit in trade balances caused by democratic governance models
- The insufficient parliamentary oversight and absence of public consultation in treaty negotiations conducted by the executive
Answer: D. In international economic law, 'democratic deficit' denotes the lack of adequate parliamentary supervision and external consultative processes with stakeholders when technocrats and the executive negotiate treaties behind closed doors.
Revision flashcards
- Why did India adopt the 2015 Model BIT? To counter a series of adverse investor-state dispute settlement (ISDS) claims and arbitrations filed against India by foreign investors.
- What was a major procedural hurdle for foreign investors under the 2015 Indian Model BIT? The mandatory requirement to exhaust local judicial remedies for at least five years before initiating international arbitration.
- What does 'democratic deficit' mean in treaty-making? Insufficient parliamentary oversight and a lack of public/external stakeholder consultations by the executive branch during treaty negotiations.
- Is India a member of the ICSID? No, India is not a signatory or member of the International Centre for Settlement of Investment Disputes (ICSID).
- Which Indian constitutional article deals with the executive power of the Union regarding international affairs and treaties? Article 73, which extends the executive power of the Union to matters where Parliament has legislative competence.