Why in News?
India’s 2015 Model Bilateral Investment Treaty (BIT) emerged amid concerns over expansive investor claims, particularly after White Industries v. India (2011).
It adopted a cautious architecture through a narrower investment definition, qualified substantive protections and a five-year requirement to exhaust domestic remedies.
The Union Budget 2025-26 announced its revision to make the framework more investor-friendly while protecting India’s regulatory space.
Lessons from India’s Post-2015 Treaty Practice
Calibrated dispute access: The India-UAE BIT (2024) reduced the local-remedies period to three years, compared with five years under the 2015 Model, indicating greater flexibility.
Investor accountability: The India-Uzbekistan BIT, effective in 2025, permits State counterclaims, demonstrating movement towards reciprocal obligations.
Evolving treaty design: The India-Israel BIA, effective July 2026, also adopts a three-year local-remedies period, reinforcing the trend towards differentiated treaty practice.
Flexible Model BIT: These agreements show that the Model should serve as a negotiating baseline, allowing country-specific adaptations according to economic and strategic circumstances.
Making Substantive Protections Precise
MFN: Its scope should be expressly defined. Maffezini v. Spain permitted an MFN clause to access more favourable dispute-settlement provisions, while Plama v. Bulgaria adopted a restrictive interpretation without explicit treaty language.
FET: A clearly defined Fair and Equitable Treatment standard can prevent open-ended interpretations.
- OECD work on modernising investment treaties specifically examines FET and related standards.
Expropriation: Clear criteria distinguishing direct and indirect expropriation can protect legitimate public-interest regulation while providing investors with predictable protection.
Right to regulate: Explicit exceptions for public health, environment, taxation, financial stability and national security can preserve sovereign policy space.
Reforming ISDS: Prevention and Consistency
Dispute prevention: Mandatory consultation, negotiation and mediation can resolve disputes before arbitration.
- UNCITRAL Working Group III has examined dispute-prevention mechanisms as part of ISDS reform.
Consistency: UNCITRAL discussions on a permanent investment tribunal and appellate mechanism seek to address inconsistent arbitral interpretations.
Damages: UNCITRAL's work on damages and compensation aims to improve consistency in valuation and remedies.
Transparency: UNCITRAL's Rules on Transparency in Treaty-based Investor-State Arbitration reflect the move towards greater openness.
Procedural efficiency: Clear provisions on costs, third-party funding and early dismissal can reduce frivolous or prolonged proceedings.
Sustainable Development and Investment Facilitation
Investment facilitation: UNCTAD reports a growing emphasis in newer IIAs on investment facilitation, cooperation and institutional mechanisms, beyond traditional investor protection.
Sustainable development: UNCTAD's IIA reform agenda highlights increasing integration of environmental and sustainable-development objectives into treaty drafting.
Investor responsibilities: The Uzbekistan treaty's counterclaim provision demonstrates how modern BITs can address investor conduct alongside State obligations.
Strategic sectors: UNCTAD's World Investment Report 2025 highlights the growing importance of digital technologies, semiconductors, renewable energy and other strategic sectors, requiring contemporary treaty design.
Development impact: Investment policy should promote employment, skills and technology transfer, consistent with UNCTAD's emphasis on productive and sustainable FDI.
Way Forward
Evidence-based revision: Incorporate lessons from India's UAE, Uzbekistan and Israel agreements and its arbitration experience.
Legal certainty: Precisely define investment, FET, MFN, expropriation, exceptions and investor obligations.
Balanced ISDS: Combine proportionate domestic-remedy requirements with effective consultation and dispute-prevention mechanisms.
Institutional capacity: Strengthen specialised government expertise in treaty negotiation, arbitration and dispute management.
Development orientation: Facilitate investment contributing to employment, technology, skills and sustainable infrastructure, rather than capital inflows alone.
Rule-shaping: Align India's framework with evolving UNCITRAL and UNCTAD reforms while retaining legitimate regulatory autonomy, enabling India to contribute to the evolution of international investment law.
