India Needs to Revisit Its BIT Strategy

The onset of globalisation has made the world borderless, the economic jurisdiction of a country is no longer confined to its geographical frontiers. The ‘blurring’ of borders has meant that global investments are witnessing fluidity of the highest order. A Bilateral Investment Treaty (BIT) is an agreement laying down the rules and regulations that would govern investments in each other's territories. BIT in a nutshell is a list of protection in the form of broad guarantees of treatment for investors in accordance with international law to investments and also lists the course of action in case of disputes or in the event of any unforeseen incidents. BIT typically aims to promise “fair and equitable treatment” and “full protection and security” for investments, and promise not to engage in “arbitrary” or “discriminatory” decision-making.

Post the LPG reforms, India signed its first BIT in 1994 with the United Kingdom and with time India consequently entered into BIT with more than 80 countries. However, in what appears to be a watershed moment in India’s post-LPG reforms era, the White Industries case in 2011 set the cat among the pigeons prompting India’s policymakers to start drafting a new model BIT to replace the model Bilateral Investment Promotion Agreement (2003). The White Industries case was not an isolated event, there were a plethora of notices under BITs, owing to the retrospective taxation debacle in the case against Vodafone and the cancellation of 2G licenses by the Supreme Court. Fast forward to the 2016 model BIT, it appears that the remedy has been worse than a disease. India was given a notice of termination of its existing BITs to at least 74 countries, these incidents will dent future investment prospects in India.

The critics of this model BIT have pointed out that the narrowing down of the definition of “investment,” creating a high threshold of breaches and eliminating much of the protections that investors lean upon, is the major reason behind such terminations. How does India go about having a functional BIT for the future? India may have to look towards having a more accommodative BIT, take steps to ensure there is better enforcement of contract, remove bottlenecks to have the judicial process expedited, the Government may explore ADR mechanisms that are available under BITs, for instance, state-state arbitration is an attractive option as well.

India’s future growth ambitions will require foreign investment to sustain, therefore it is imperative to have a well-laid out framework that would minimise disputes from arising and also ensure that in case of any such inevitable disputes, the issue is resolved expediently with a minimum economic and political cost.