India’s Model BIT — a decade later, amid changes

Indian Economy and Investment Models · 3 October 2026 · Based on The Hindu (original report)

2-minute summary

India is currently revamping its 2015 Model Bilateral Investment Treaty (BIT) to make it more investor-friendly, as announced in the Union Budget 2025-26. The 2015 Model was highly defensive, formulated in the wake of adverse international arbitration awards like the White Industries case (2011). It featured a narrow 'enterprise-based' definition of investment and a strict five-year local remedies exhaustion clause. However, India's recent treaty practice shows a shift toward greater flexibility. For instance, the India-UAE BIT and the India-Israel Bilateral Investment Agreement (BIA)—which entered into force in July 2026—have reduced the local remedies exhaustion period to three years. Additionally, the India-Uzbekistan BIT introduces state counterclaims against investors. As global bodies like UNCITRAL reform the Investor-State Dispute Settlement (ISDS) mechanism, India's new Model BIT must strike a delicate balance: protecting regulatory sovereignty while offering a predictable, competitive environment to attract foreign capital.

Why it's in the news

The Union Budget 2025-26 announced a revamp of India's decade-old 2015 Model Bilateral Investment Treaty (BIT). This op-ed analyzes the lessons from India's treaty practice over the last decade to guide the formulation of the new model.

Facts to remember

  • India's revised Model Bilateral Investment Treaty (BIT) was approved in 2015 following the adverse White Industries Australia Limited vs Republic of India arbitration award in 2011.
  • The India-Israel Bilateral Investment Agreement (BIA) entered into force in July 2026, incorporating a reduced three-year local remedies exhaustion period.
  • Under the India-Uzbekistan Bilateral Investment Treaty, the host state is expressly permitted to assert counterclaims against a foreign investor.
  • The landmark Emilio Agustín Maffezini vs Kingdom of Spain case established that Most Favoured Nation (MFN) clauses could be used by investors to bypass local litigation requirements.

Background and context

Prior to 2015, India signed highly liberal, asset-based BITs. However, following retrospective tax disputes and telecom license cancellations, India faced over a dozen Investor-State Dispute Settlement (ISDS) claims. The turning point was the 2011 White Industries case, where an UNCITRAL tribunal held India liable for judicial delays under the 'effective means' of asserting claims provision. In response, India adopted a highly defensive Model BIT in 2015. It narrowed the definition of investment to 'enterprise-based', excluded taxation, and mandated that foreign investors must exhaust domestic judicial and administrative remedies for at least five years before initiating international arbitration. While this protected India's regulatory space, it led to the termination of over 70 existing BITs, creating a treaty vacuum that hindered foreign direct investment (FDI) inflows and necessitated the current revamp.

Constitutional provisions

  • Article 253 — Empowers Parliament to make laws for implementing any treaty, agreement, or convention with other countries, which is the constitutional basis for domestic enforcement of BIT obligations.
  • Article 73 — Specifies that the executive power of the Union extends to matters with respect to which Parliament has power to make laws, including negotiating and signing international investment treaties.

Committees and reports

  • Parliamentary Standing Committee on External Affairs Report on India's Bilateral Investment Treaties — Recommended a review of the 2015 Model BIT, noting that the mass termination of treaties had adversely affected FDI inflows, and urged a more balanced approach to investor protection and state sovereignty.

International organisations

  • United Nations Conference on Trade and Development (UNCTAD) — Monitors global investment trends and advocates for reforming international investment agreements to align with sustainable development goals.
  • United Nations Commission on International Trade Law (UNCITRAL) — Its Working Group III is leading multilateral negotiations to reform the Investor-State Dispute Settlement (ISDS) system, including proposals for a permanent multilateral investment court.

Previous UPSC questions on this theme

  • Prelims GS-1 2020 — With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct ? 1. Quantitative restrictions on imports by foreign investors are prohibited. 2. They apply to investment measures related to trade in both goods and services. 3. They are not concerned with the regulation of foreign investment. Select the correct answer using the code given below : (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3
  • Prelims GS-1 2020 — With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ? (a) It is the investment through capital instruments essentially in a listed company. (b) It is a largely non-debt creating capital flow. (c) It is the investment which involves debt-servicing. (d) It is the investment made by foreign institutional investors in the Government securities.

Mains practice: Analyze the structural limitations of India's 2015 Model Bilateral Investment Treaty (BIT) that led to a decline in signed investment agreements. How can the proposed revamp balance investor confidence with regulatory sovereignty?

India's 2015 Model Bilateral Investment Treaty (BIT) was a defensive reaction to adverse international arbitration awards, notably the White Industries case (2011). While it successfully protected state regulatory space, its overly restrictive clauses led to a mass termination of existing treaties, creating a treaty vacuum that impacted foreign investor confidence.

• **Structural Limitations of the 2015 Model BIT**:

- *Exhaustion of Local Remedies*: Mandating a strict five-year litigation period in domestic courts before initiating international arbitration created a high entry barrier for foreign investors wary of India's judicial delays.

- *Narrow Investment Definition*: Shifting from an 'asset-based' to an 'enterprise-based' definition excluded portfolio investments and pre-investment activities, reducing the scope of protection.

- *Exclusion of MFN*: The complete omission of the Most Favoured Nation (MFN) clause, intended to prevent treaty-shopping (as seen in the *Maffezini vs Spain* case), made Indian treaties less competitive globally.

• **Evolving Pragmatism in Recent Practice**:

- Recent agreements indicate a shift towards flexibility. The India-UAE BIT and the India-Israel BIA (which entered into force in July 2026) have reduced the local remedies exhaustion period to three years.

- The India-Uzbekistan BIT introduces reciprocal accountability by expressly permitting host-state counterclaims against non-compliant investors.

• **Way Forward for the Revamped Model**:

- *Calibrated MFN Clause*: Reintroduce the MFN clause but explicitly exclude dispute settlement procedures from its scope to prevent treaty-shopping while ensuring non-discriminatory treatment.

- *Tiered Dispute Resolution*: Adopt a flexible local remedies clause (e.g., three years) coupled with mandatory mediation and dispute prevention mechanisms, aligning with UNCITRAL Working Group III reforms.

- *Codified Investor Obligations*: Clearly define investor duties regarding environmental compliance and corporate governance to justify state counterclaims.

In conclusion, a balanced, revamped Model BIT is essential to align India's investment climate with its goal of a $5 trillion economy while upholding the constitutional promise of rule of law and sovereign policy space.

Prelims practice questions

Q1. Consider the following statements regarding India's Bilateral Investment Treaty (BIT) framework: 1. The 2015 Model BIT shifted the definition of investment from an 'enterprise-based' approach to a broader 'asset-based' approach. 2. The India-Israel Bilateral Investment Agreement (BIA) of 2026 requires a three-year period for pursuing local remedies before commencing treaty arbitration. 3. Under the India-Uzbekistan BIT, the host state is expressly permitted to assert counterclaims against a foreign investor. How many of the above statements are correct?

  1. Only one
  2. Only two
  3. All three
  4. None

Answer: B. Statement 1 is incorrect because the 2015 Model BIT actually shifted the definition from a broad 'asset-based' approach to a narrower 'enterprise-based' approach to limit frivolous claims. Statement 2 is correct as the India-Israel BIA (July 2026) reduced the local remedies period to three years. Statement 3 is correct as the India-Uzbekistan BIT explicitly permits state counterclaims against investors.

Q2. With reference to international investment arbitration and treaty clauses, consider the following statements: 1. The Most Favoured Nation (MFN) clause can potentially be used by investors to import more favorable dispute settlement provisions from third-party treaties, as seen in the Maffezini case. 2. The United Nations Commission on International Trade Law (UNCITRAL) is currently working on reforms to the Investor-State Dispute Settlement (ISDS) mechanism, including exploring a permanent appellate mechanism. 3. India's 2015 Model BIT completely excludes taxation measures from its scope of protection. Which of the statements given above are correct?

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3

Answer: D. All three statements are correct. Statement 1 describes the precedent set by Emilio Agustín Maffezini vs Kingdom of Spain. Statement 2 correctly identifies UNCITRAL Working Group III's mandate. Statement 3 is correct as India's 2015 Model BIT excluded taxation to prevent foreign investors from challenging domestic tax laws (like retrospective taxation) in international tribunals.

Q3. In the context of international investment law, the principle of 'Exhaustion of Local Remedies' (ELR) primarily refers to which of the following?

  1. The requirement that a foreign investor must first attempt to resolve a dispute through the host state's domestic judicial or administrative systems before invoking international arbitration.
  2. The obligation of the host state to exhaust all domestic financial reserves before seeking international bailouts or restructuring foreign debt.
  3. The rule that foreign investors must utilize local raw materials and labor up to a specified threshold before importing foreign inputs.
  4. The legal process by which a host state nationalizes foreign assets after providing adequate and prompt compensation through local courts.

Answer: A. The 'Exhaustion of Local Remedies' (ELR) is a standard clause in BITs (such as India's 5-year requirement in the 2015 Model) requiring foreign investors to litigate their grievances in domestic courts for a specified duration before they can file an international ISDS claim.

Revision flashcards

  • What is the primary difference between 'asset-based' and 'enterprise-based' definitions of investment in Bilateral Investment Treaties (BITs)? Asset-based definitions cover all assets (including portfolio investments and IP), while enterprise-based definitions (used in India's 2015 Model BIT) require a real, active business enterprise with long-term commitment.
  • What is the 'Exhaustion of Local Remedies' (ELR) clause in Bilateral Investment Treaties? A clause requiring foreign investors to litigate their disputes in the host state's domestic courts for a specified period before initiating international arbitration.
  • How did the India-Israel Bilateral Investment Agreement (BIA), which entered into force in July 2026, modify the local remedies exhaustion period compared to the 2015 Model BIT? It reduced the period for pursuing local remedies from five years (in the 2015 Model) to three years.
  • Which bilateral investment treaty signed by India in the mid-2020s explicitly permits the host state to assert counterclaims against a foreign investor? The India-Uzbekistan Bilateral Investment Treaty (BIT).
  • Why did India adopt a highly defensive and restrictive Model BIT in 2015? It was a reaction to adverse international arbitration awards (like the 2011 White Industries case) and multiple ISDS claims challenging India's regulatory and taxation policies.

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