Reinforcing Fair Reforms in India's Bilateral Investment Agreements
India's Bilateral Investment Treaties (BITs) have been a subject of intense debate and scrutiny, with concerns arising over their impact on the nation's regulatory autonomy and the balance of legal remedies for foreign investors versus Indian citizens.
Historically, early Indian BITs have been criticised for favouring foreign investor protections at the expense of regulatory sovereignty. For instance, the lack of provisions protecting India's right to regulate in the public interest on matters such as taxation, health, environment, and security led to India losing several investment arbitration cases. The Vodafone and Cairn disputes, where India's retrospective tax amendments were deemed abusive by tribunals, have caused significant damage to India's reputation as an investor-friendly nation.
However, recognising these issues, India introduced a Model BIT in 2016, aiming to strike a balance between investor protections and India's right to regulate for public welfare. Key changes include requiring exhaustion of domestic remedies before international arbitration, limiting fair and equitable treatment (FET) claims to violations of customary international law, and expressly preserving regulatory rights in health, environment, and welfare domains.
One of the most contentious issues is the unequal legal remedies for foreign investors versus Indian citizens. While foreign investors can enforce treaty protections globally, Indian citizens primarily rely on domestic legal systems for human rights claims. This imbalance raises questions about fairness and sovereignty.
As the BIT strategy evolves to integrate economic interests with protective regulatory measures, critics argue that it could still encroach on policy space. For example, controversies over India's trade and investment deals impacting pharmaceutical patent rules and government procurement policies highlight the need for careful consideration.
The Model BIT creates an internationalised version of Article 32 of the Indian Constitution exclusively for foreign investors, granting them privileged and direct international access that domestic individuals and companies do not enjoy. India allows foreign investors to present their disputes directly before international arbitration tribunals under BITs, while denying this privilege to its own citizens under international human rights instruments.
It is crucial for Parliament to openly discuss, reconsider, and possibly recalibrate India's BIT policy, placing the nation's sovereignty and the interests of its citizens firmly at its core. The BIT policy should reflect a coherent policy that upholds judicial sovereignty, reinforces national autonomy, and ensures equitable accountability for both investors and the Indian State.
Parliamentary scrutiny of the BIT policy is necessary to assess whether BITs equitably balance investor protections and national sovereignty, question their contemporary relevance, and evaluate whether India still benefits sufficiently from these agreements to justify sacrificing critical sovereign rights. The current Indian Model BIT provides expansive protections to investors without equally robust reciprocal protections for India.
In conclusion, India must critically evaluate whether BITs align with national interests and provide reciprocal protections that preserve regulatory autonomy and sovereign integrity. The question for India's policymakers is whether to continue subordinating sovereignty under BITs that primarily serve investors who no longer significantly rely on such treaties to facilitate their capital flows. Despite systematically terminating multiple BITs since 2016, India's FDI inflows have grown significantly, suggesting that other factors such as market potential, a skilled workforce, economic stability, and improving regulatory frameworks significantly outweigh any perceived advantage offered by BITs.
This article is a viewpoint by Ajay Kumar, a Partner, and Shivali Srivastava, an Associate at Triumvir Law.
[1] Kumar, A., & Srivastava, S. (2021). India's Bilateral Investment Treaties: A Critical Appraisal. Economic and Political Weekly, 56(45), 49-58. [2] Ministry of Finance, Government of India. (2016). Model Bilateral Investment Treaty. Retrieved from https://www.investindia.gov.in/uploads/model-bit-2015.pdf [3] Government of India. (2016). National Intellectual Property Rights Policy. Retrieved from https://ipindia.gov.in/writereaddata/files/NIPR_Policy_2016.pdf [4] Ministry of Commerce and Industry, Government of India. (2018). India’s Position Paper on Investor-State Dispute Settlement (ISDS) Reform. Retrieved from https://www.meity.gov.in/writereaddata/files/India's_Position_Paper_on_ISDS_Reform.pdf
In the context of India's Bilateral Investment Treaties (BITs), the Model BIT introduced in 2016 aimed to balance investor protections with India's right to regulate for public welfare, including provisions for exhausting domestic remedies, limiting fair and equitable treatment claims, and preserving regulatory rights in health, environment, and welfare domains. However, critically, the unequal legal remedies for foreign investors versus Indian citizens persists, raising questions about fairness and sovereignty in the business and finance sector.
