India's BIT Reboot: Why New Delhi is Re-engaging the World on Investment Treaties

The Main Story: A Strategic Pivot on Global Investment Rules

After nearly a decade of a defensive posture on international investment agreements, India is actively re-engaging with partner countries to sign a new generation of Bilateral Investment Treaties (BITs). This shift is not a return to the liberal framework of the 1990s but a calibrated pivot, reflecting new economic imperatives and lessons from past disputes. The government's approach, according to official statements, seeks to balance making India an attractive destination for foreign capital with safeguarding its sovereign right to regulate in the public interest.

Why India Paused its BIT Program After 2016

The primary trigger for India's retreat was a surge in Investor-State Dispute Settlement (ISDS) claims. Beginning around 2011, foreign investors used the broad protective clauses in older treaties to challenge domestic policy and judicial decisions. According to government data shared in Parliament in March 2023, India had faced over 20 known ISDS claims with significant financial implications. The award against India in the White Industries case was a major catalyst, demonstrating how commercial disputes delayed in domestic courts could escalate into treaty breaches.

This experience led New Delhi to conclude that the 1993-era BITs were imbalanced, favouring investors and constraining the state's ability to regulate. In response, the government adopted the 2016 Model BIT, designed to be highly protective of state interests. Its most stringent feature was the mandatory requirement for foreign investors to litigate in domestic courts for five years before they could initiate international arbitration. This, along with a narrower definition of 'investment' and the exclusion of taxation measures, made the 2016 model a non-starter for most partners. Consequently, after unilaterally terminating most of its treaties, India signed few new agreements.

This was part of a global trend. As noted in a research report by José Miguel Ahumada and Ha-Joon Chang, other developing countries like South Africa and Indonesia also terminated their BITs to preserve policy space. They argued that ISDS tribunals often favoured corporations and created a "regulatory chilling effect on host countries."