BILATERAL INVESTMENT TREATY (BIT) IN INDIA
Copyright infringement not intended
Context: The Finance Minister's announcement in the interim Union budget reflects a renewed focus on negotiating Bilateral Investment Treaties to attract foreign direct investment (FDI).
- Bilateral Investment Treaties (BITs) are agreements that establish the terms and conditions for private investment by nationals and companies of one country in another country. They are designed to promote and protect foreign direct investment (FDI), which is a type of investment that indicates a significant influence and long-term interest in an enterprise in another country.
- BITs typically include guarantees such as fair and equitable treatment, protection from expropriation, free transfer of means and full protection and security for the investors. They also allow investors to resort to international arbitration in case of disputes with the host state, rather than suing in domestic courts.
- BITs are often based on model texts prepared by influential capital-exporting countries, and may also contain environmental provisions or lists of excluded industries.
- India initially saw BITs as a way to attract foreign investment in the 1990s. However, concerns arose about the burden on the government due to investor-state dispute settlements (ISDS).
- In 2016, India adopted a new BIT model with stricter terms and terminated many existing treaties. This stricter model has made it difficult to renegotiate treaties and attract FDI.
- FDI inflows declined by 24% in April-September 2023 compared to the previous year.
Key Features of Indian BITs
- National Treatment: Foreign investors are treated no less favourably than domestic investors in similar situations.
- Most-Favoured-Nation Treatment: Investors receive the same benefits as those granted to investors from any other country with a BIT with India.
- Fair and Equitable Treatment: Investors are guaranteed fair and equitable treatment in accordance with international law.
- Protection from Expropriation: Investments are protected from expropriation by the host government without due process and compensation.
- Dispute Settlement: Mechanisms exist for resolving disputes between investors and the host government, often through arbitration.
Impact of BITs
- Increased Foreign Investment: BITs can attract foreign investment by providing investors with greater certainty and predictability.
- Economic Growth: Increased foreign investment can contribute to economic growth and job creation.
- Investor Protection: BITs provide a legal framework for protecting investors' rights and interests.
- Potential for Disputes: BITs can also lead to investor-state disputes, raising concerns about corporate accountability and the potential for undermining government regulations.
Status of BITs
- India's history with Bilateral Investment Treaties (BITs) involves signing agreements with 83 countries until 2015, based on the 1993 Model BIT.
- India has signed 83 BITs with different countries, of which 66 are in force.
- India is currently negotiating new BITs with several countries, incorporating updated provisions on issues like intellectual property, environment, and corporate social responsibility.
- India needs to move beyond the limitations of the 2016 BIT model and adopt a forward-looking approach that balances investor protection with national interests. By implementing the recommendations above and tailoring BITs to specific partnerships, India can create a more attractive environment for foreign investment and contribute to its economic growth.
Must Read Articles:
BILATERAL INVESTMENT TREATY BETWEEN INDIA AND UNITED ARAB EMIRATES: https://www.iasgyan.in/daily-current-affairs/bilateral-investment-treaty-between-india-and-united-arab-emirates#:~:text=A%20Bilateral%20Investment%20Treaty%20
Q. While FDI can bring capital and technology, it also raises concerns about potential environmental damage and exploitation of resources. How can India ensure responsible and sustainable FDI practices, especially in sectors like extractive industries and infrastructure development?
1.Define what FDI is and why it is important for India's economic growth and development.
2.Explain the benefits of FDI in terms of capital inflows, technology transfer, employment generation, and market access.
3.Acknowledge the challenges and risks of FDI in terms of environmental degradation, resource depletion, social conflicts, and regulatory gaps.
4.Provide some examples of FDI projects in extractive industries and infrastructure development that have caused or could cause negative impacts on the environment and society.
5.Suggest some measures and policies that India could adopt to ensure responsible and sustainable FDI practices, such as environmental impact assessment, stakeholder consultation, corporate social responsibility, and international standards compliance.