Bilateral Investment Treaties (BITs)

Meaning and Objectives

A Bilateral Investment Treaty (BIT) is an agreement between two countries to protect and promote investments made by investors of one country in the other.
It provides safeguards against discriminatory or arbitrary treatment, improves legal certainty and establishes mechanisms for resolving investment disputes.
Investor-State Dispute Settlement (ISDS) allows foreign investors to bring claims against host governments for alleged violations of treaty obligations.

1993: India introduced its original Model BIT, subsequently amended in 2003.
2016: India adopted a revised Model BIT that strengthened the State’s right to regulate and imposed stricter conditions for accessing international arbitration.
2016–17: India issued termination notices to around 68 treaty partners and sought renegotiation under the revised framework, following concerns over adverse arbitral awards.
Union Budget 2025–26: The government announced a review of the 2016 Model BIT to improve investment flows while preserving regulatory autonomy.
India is preparing a revised template, with four to five investment agreements expected to be finalised by the end of 2026. Recent agreements with partners such as the UAE, Saudi Arabia and Israel reflect efforts to recalibrate investor protection.

Exhaustion of Local Remedies (ELR) requires investors to approach domestic courts or administrative authorities before initiating international arbitration.
The 2016 Model BIT prescribed a five-year local-remedies period, which investors criticised as delaying access to international dispute settlement.
Recent agreements indicate greater flexibility: the 2024 India–UAE BIT provides a three-year period, while the India–Saudi Arabia agreement provides a two-year period.
A consistent and practical approach to local remedies and limitation periods can improve predictability for investors while allowing governments to resolve disputes domestically.

Policy space: Broad treaty obligations may constrain legitimate regulation in areas such as public health, the environment and economic development.
Financial burden: International arbitration involves substantial legal costs and potential compensation liabilities.
Regulatory chilling effect: Governments may hesitate to introduce public-interest measures because of the risk of litigation.
Developmental concerns: Excessively restrictive treaty obligations may limit policy instruments used to promote technology transfer and domestic industrial capabilities.
International developments reflect similar concerns: the EU withdrew from the Energy Charter Treaty, while the US and Canada removed ISDS provisions from the USMCA. New Zealand has also opted out of ISDS provisions under the CPTPP.

Finalise a modern and consistent Model BIT with clear definitions, predictable protections and safeguards against frivolous claims.
Establish a statutory, time-bound grievance-redressal mechanism for both domestic and foreign investors.
Improve the speed and effectiveness of domestic dispute resolution so that local remedies offer a credible alternative to international arbitration.
Preserve the State’s right to regulate in the public interest while ensuring fair and non-discriminatory treatment of investors.
India’s objective should be to attract long-term FDI through legal certainty and efficient dispute resolution, rather than weakening legitimate regulatory powers.