A BIT of a reset, with a wider debate
Revising India’s bilateral investment treaty (BIT) requires consultation and stronger democratic accountability
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Context
India is in the process of revising its 2015 Model (BIT). The 2015 model, adopted after several foreign investors successfully sued India for BIT breaches under earlier, older treaties, has been criticized for being heavily skewed towards state regulatory power at the expense of investor protection. Consequently, India has managed to sign very few new BITs based on the 2015 model, prompting a necessary re-evaluation to strike a better balance and attract foreign capital.
UPSC Perspectives
Economic
A Model (BIT) serves as a template or baseline document that a country uses to negotiate investment agreements with other nations. These treaties are essential for mitigating political risk for (FDI). They provide guarantees to foreign investors regarding fair and equitable treatment, protection against arbitrary expropriation, and the ability to repatriate profits. The core challenge in drafting a model BIT is finding the equilibrium between two competing interests: investment protection (which attracts capital) and the host state's right to regulate (the sovereign power to make laws for public health, environment, or security). The 2015 Indian Model BIT, formulated defensively after adverse rulings in international arbitration (like the White Industries case), tilted heavily towards the state's right to regulate. It mandated the exhaustion of local judicial remedies before allowing foreign investors to access (ISDS) mechanisms via international arbitration. This high regulatory threshold created policy uncertainty and deterred capital-exporting nations from signing new treaties with India, ultimately hindering India's ability to attract long-term foreign investment. The impending revision aims to correct this imbalance, making the treaty more investor-friendly while maintaining necessary sovereign safeguards.
Polity
The article highlights a crucial concept in democratic governance regarding treaty-making: the democratic deficit. Unlike domestic legislation, which goes through rigorous parliamentary debate and public scrutiny, international treaties (including economic ones like BITs) are often negotiated by the executive branch behind closed doors. This lack of transparency and participation can be problematic because these treaties, especially those containing ISDS provisions, can profoundly impact domestic regulatory frameworks and public policy. The author advocates for addressing this deficit by incorporating the all-affected principle—the idea that those affected by a decision should have a say in it. This requires robust public consultation and parliamentary oversight. The LCI () was involved in reviewing the draft 2015 Model BIT, demonstrating a past attempt at broader consultation. The current revision process, the author argues, should similarly involve external experts, industry stakeholders, and civil society, and the final draft should be placed before Parliament (and relevant ) for debate before final adoption. This ensures that the treaty reflects a broader national consensus rather than just bureaucratic priorities.
Governance
The article emphasizes the procedural aspect of policy formulation, stressing that the process of creating a model BIT is as important as its substantive content. Effective governance dictates that significant economic policies should not be mere 'box-ticking exercises' but meaningful, participatory processes. A well-governed approach involves a multi-stage consultative mechanism: internal inter-ministerial deliberations, engagement with external domain experts (international lawyers, economists), soliciting views from industry and civil society, and ultimately, parliamentary scrutiny. This structured approach helps anticipate unintended consequences, address diverse stakeholder concerns, and build legitimacy for the final policy framework. By advocating for this transparent and inclusive process, the article underscores a shift from traditional, opaque executive action to more modern, deliberative governance models. It highlights the need to move away from a defensive, reactive posture (as seen in the 2015 revision) towards a proactive, well-calibrated policy that aligns India's economic goals (attracting FDI) with robust legal and regulatory frameworks.