India’s Model Bilateral Investment Treaty: Lessons from a Decade of Investor-State Arbitration

India’s effort to revise its Model Bilateral Investment Treaty (BIT) comes nearly ten years after the 2015 model was approved. The Union Budget 2025-26 announced a revamp, and the revised text is reportedly finalised and awaiting Cabinet approval.

The timing matters. India has recently concluded investment agreements with the UAE, Uzbekistan and Israel, the last entering into force in July 2026. India is also negotiating trade agreements that increasingly carry investment chapters. The question is not whether India should offer investors more or less protection, but what it has learnt from the last decade.

The Model BIT is a policy statement as much as a legal template. It shapes India’s credibility with investors, its fiscal exposure to arbitral awards and its ability to regulate in the public interest.

Background and Context

India signed more than 80 BITs in the 1990s and 2000s. Adverse awards such as White Industries Australia v India (2011) triggered a rethink, and India issued termination notices to dozens of partners from 2016.

Five Important Key Points

• The 2015 Model BIT narrowed the definition of investment and excluded taxation, subsidies and compulsory licences from its scope.
• It required investors to exhaust local remedies for five years before commencing arbitration.
• The India-UAE BIT and the India-Israel agreement reduced that period to three years.
• The India-Uzbekistan BIT expressly permits a state counterclaim against an investor.
• UNCITRAL Working Group III is examining ISDS reform, including a permanent tribunal and an appellate mechanism.

Legislative and Constitutional Framework

Treaty-making is an executive power under Article 73, and Article 253 empowers Parliament to legislate to implement international agreements. Entries 10 and 14 of the Union List cover foreign affairs and treaties. India has no statute requiring parliamentary approval of treaties, which gives the executive latitude but limits democratic scrutiny of arbitration exposure.

Why the 2015 Model Needs Revisiting

The 2015 model was shaped by caution after awards against India, and the retrospective tax disputes involving Cairn and Vodafone reinforced this. Yet it received limited uptake. Partners found the five-year exhaustion requirement and the narrow definition unattractive. India’s net foreign direct investment has weakened in recent years even as gross inflows remain large, which makes treaty credibility a live policy concern.

What a New Model Must Decide

Four design choices matter.

MFN clause. Most Indian treaties omit Most Favoured Nation treatment. If one is included, its scope must be explicit. In Maffezini v Spain, an MFN clause was used to bypass an 18-month local-court requirement, while Plama v Bulgaria rejected importing dispute-settlement provisions without express treaty language.

Investor obligations. The India-Uzbekistan model allows counterclaims. A new model can specify investor duties on environment, labour and anti-corruption in clear legal terms, rather than as aspirational statements.

Dispute settlement. The three-year local remedies period, with consultation and dispute-prevention procedures before arbitration, aligns with UNCITRAL discussions.

Substantive standards. Precise language on expropriation and fair and equitable treatment (FET) limits arbitral discretion while preserving the state’s regulatory power.

Economic Implications

Investment treaties influence risk perception, and a better-calibrated model may help India attract manufacturing investment as supply chains diversify. India’s trade agreements with the EFTA bloc and the UK carry investment-related commitments, so alignment between the Model BIT and these chapters will matter. Overly generous protection raises contingent liabilities, while an overly restrictive text invites investor reluctance.

Governance Concerns

Arbitral exposure sits with the Union government, but disputes frequently arise from State or municipal actions such as land, power purchase agreements and licensing. Coordination between the Department of Economic Affairs, the Law Ministry and States is limited. India also lacks a robust dispute-prevention mechanism, such as an investment ombudsman, to resolve grievances before they become treaty claims.

Comparative Perspective

The EU has proposed a standing Investment Court System in its newer agreements. South Africa replaced BITs with a domestic Protection of Investment Act, 2015. Brazil developed Cooperation and Facilitation Investment Agreements that avoid investor-state arbitration. Scholar Makane Moïse Mbengue’s argument, cited in the editorial, is that developing states can be rule-shapers and not only rule-takers.

Bihar Connection

Bihar competes for investment in food processing, makhana, textiles and logistics, and has pursued investor outreach through State investment promotion packages. A credible treaty framework helps indirectly, since foreign investors benefit from assurance on dispute resolution when they enter States with weaker investment histories. States also carry the real risk, because land acquisition and regulatory decisions at State level can trigger claims against the Union.

Way Forward

• Table the Model BIT for parliamentary discussion before ratification of individual treaties.
• Define the MFN scope precisely, excluding dispute-settlement procedures.
• Include investor obligations and a counterclaim provision in clear legal terms.
• Create a State-level grievance mechanism, and an investment ombudsman at the Union level.
• Participate actively in UNCITRAL Working Group III so that India’s concerns shape ISDS reform.

Relevance for UPSC and SSC Examinations

UPSC: GS-III: investment models, FDI policy, external sector. GS-II: international agreements and India’s treaty practice. Essay: balancing investor protection and regulatory sovereignty.

SSC: BIT, FDI, ISDS, Article 253, UNCITRAL, UNCTAD.

Key terms: Model BIT 2015, MFN, FET, expropriation, ISDS, White Industries, local remedies, counterclaim.