Bilateral Investment Treaties (BITs)

Subject: Economy

Sec: External Sector

Context:

Finance Minister Nirmala Sitharaman during her Interim Budget speech said that India is negotiating BITs with trade partners to boost the inflow of foreign direct investments (FDI).

More on news:

A relook at BITs comes at a time when India is pursuing economic integration with western nations such as the United Kingdom (UK) and the European Union through free trade agreements and investment treaties.
For encouraging sustained foreign investment there is a need to negotiate various bilateral investment treaties with our foreign partners which will be in the spirit of ‘first develop India’
The FDI inflow during 2014-23 was $596 billion marking a golden era.
That is twice the inflow during 2005-14

About Bilateral Investment Treaties (BITs):

Bilateral investment Treaties (BITs) or Bilateral Investment Protection Agreements (BIPAs) are agreements between two countries for the reciprocal promotion and protection of investments in each other’s territories by individuals and companies situated in either State.
They provide treaty based protection to foreign investment.
The BITs are thus bilateral agreements by countries to protect the investment by each country’s investors in the other country. Though they are signed by governments, their beneficiaries are business entities.
India has inked 86 such bilateral treaties, the latest being with Brazil in 2020.
However, there have been many cases of the penalty awarded by an International Dispute Settlement (ISDS) tribunal served against India.
This led to a review of the BITs and in 2016 India launched the Model BIT.
It aims to act as a base for negotiating new BITs with other States, as well as for re-negotiation of the existing ones.
Main reason for bringing the Model BIT was the constant suing of the country by foreign firms. India was one of the most sued countries during 2015 and 2016.

BITs in India:

BITs had dipped as a number of trade partners were against India’s insistence on favoring ‘exhaustion of local remedies’ clause in the model BIT.
This clause stressed on resolving investment-related legal disputes locally before going to international arbitration.
According to the World Bank’s ‘Ease of Doing Business 2020’ report, India ranked 163 out of 190 countries in ease of enforcing contracts and taking 1,445 days and 31 per cent of the claim value for dispute resolution.
Before the 2015 regime India had BITs with 83 countries or regions but India suspended BITs with 68 countries/regions with a request to re-negotiate based on the model 2016 BIT.
Foreign direct investment (FDI) equity inflows in India declined 24 per cent to $20.48 billion in April-September 2023.
The total FDI which includes equity inflows, reinvested earnings and other capital had contracted 15.5 per cent to $32.9 billion during the period under review against $38.94 billion in April-June 2022.