Prateek Tanmay
A minimum two-year period for local remedies before initiation of international arbitration; no most-favoured nation clause; and, an exclusion of tax-related provisions.
These are the three key principles on which the Centre is remodelling its Bilateral Investment Treaties (BITs) with countries, The Indian Express has learnt.
Amid the recent debate on various issues with the BIT model, the Centre is considering tailoring them according to engagement with other countries, with even a one-year cooling window for local remedies being considered for a few countries amid ongoing negotiations, a top Government source told this newspaper.
“We have to protect the sovereignty of our country, the powers of our Parliament. So, local remedies cannot be done away with by heading straightaway to international arbitration. That’s why we are looking at a minimum two-year timeline for local remedies within India’s legal system. Also, the ongoing discussions are leaning towards no clause for ratcheting or most-favoured nation in the investment pacts. Taxation will also be kept separate from the investment pacts,” the source said.
BITs are crucial for promotion and protection of investors as they pour money into each other’s countries. At present, the government follows the BIT model approved in December 2015 and adopted in January 2016, which mandates exhaustion of domestic remedies prior to the initiation of international arbitration proceedings.
Asked if the local remedies clause, which did not exist in the country’s pre-2016 BIT model, creates a hurdle for investors, the source said India has pushed for dedicated commercial courts — and that route has to be explored before international arbitration, which doesn’t have fair representation from all countries and can lead to discretionary decisions.
The changes in the erstwhile 1993 BIT were also prompted by several international arbitration proceedings by global majors such as Vodafone and Cairn against the Government in different tax disputes. The Budget for 2025-26 had announced the revamping of the 2016 model to make it more investor-friendly and attract sustained foreign investment.
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In February 2025, speaking at the International Commercial & Investment Treaty Arbitration in Delhi, Union Finance Minister Nirmala Sitharaman said that BIT should be handled separately and negotiated standalone from the free trade agreements by specialists with expertise in elements of policy making such as taxation.
Sitharaman had underlined that before taking up international arbitration, enough time should be given to the contesting parties to go through the available local remedies because that is important for the host country.
On May 21 this year, senior economist Surjit Bhalla in his column for The Indian Express wrote that the “most damaging provision” in India’s BIT was the requirement that “foreign investors exhaust local remedies for five years before accessing international arbitration”.
“Finance Minister Nirmala Sitharaman announced in Parliament in February 2025 that the BIT framework would be reviewed and a new version released. The reform release is still awaited. Speculation is that the fundamental architecture has not changed — except that the five-year waiting period has been shortened to ‘just’ three years. And the requirement to exhaust Indian courts first — the defining departure from pre-2015 BIT norms — is likely being retained,” he wrote.
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Chief Economic Advisor V Anantha Nageswaran had replied to Bhalla’s piece with a column of his own on May 23 in this newspaper, stating that academic record has found weak or no effects of BITs on FDI inflows. “…a study examining India — Singh, Shreeti, and Urdhwareshe (2022), published in the Indian Economic Review — found that individual BIT signings do not influence FDI inflows; what matters is the cumulative stock of treaties, which signals an overall regime of investor protection,” the CEA had stated.
He also noted that the investment climate requires continuous improvement, and the BIT framework revision is incomplete.
Bhalla wrote again on June 2, comparing the situation with Indonesia’s decision to scrap its existing BITs in 2014 and restarting with a new model. He mentioned Indonesia having won cases against foreign mining companies and signing two new BITs, one of them with Singapore: a cooling-off period of just 12 months, followed by a three-judge panel and a presiding judge agreed upon by both, who must not be a national of either country.
“In contrast to Indonesia’s requirement of a 12-month cooling period, the Indian BIT required 60 months. Sixty months in Indian courts before any international arbitration could begin. This was not a reform — it was retrenchment,” Bhalla wrote.
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Officials said many countries like Australia have moved away from the traditional model of arbitration of Investor-State Dispute Settlement (ISDS). For instance, in the Australia-UAE investment treaty the countries moved to the dispute settlement mechanism of State-to-State Dispute Settlement (SSDS) instead of ISDS.
Before the 2016 model, India had signed bilateral investment treaties with 83 countries based on the model BIT of 1993, and as amended in 2003. Out of these, 74 were ratified. Among these 74 bilateral investment treaties, notice of termination was issued to 68 countries with request to re-negotiate based on the 2016 model, according to Government data shared in Parliament in March 2023.
Since the revised 2016 model, India has signed BITs with Belarus, Kyrgyz Republic, Investment Cooperation and Facilitation Treaty (ICFT) with Brazil, UAE and Uzbekistan, a Lok Sabha reply from April 2025 showed. In the BIT with the UAE, the window for exhaustion of local remedies was reduced to three years from five years. A Bilateral Investment Agreement has also been signed between India Taipei Association and Taipei Economic and Cultural Centre, it said.
