Context:

• The Union Budget 2024-25 proposes revamping the 2015 Model BIT to attract more foreign investment.
• Experts suggest a dual-model BIT strategy tailored to India's varying relationships with capital-exporting and capital-importing countries.

The 2015 Model BIT - A Decade of Defensiveness:

• India’s 2015 Model BIT emphasized sovereignty and regulatory autonomy.
• Included clauses such as:
  • Mandatory exhaustion of local remedies (for at least 5 years) before invoking international arbitration.
  • Narrow definition of investment.
• Result: Failed to gain traction globally and deterred potential investors.

Dual BIT Models - “Horses for Courses” Approach:

• Proposal:
  • Defensive BIT for capital-importing relationships (e.g., with African nations).
  • Investor-friendly BIT for capital-exporting ties (e.g., with countries where Indian companies invest heavily).
• Objective: Maximize benefits by aligning treaty terms with economic roles.

Flaws in the Dual BIT Approach:

• Dynamic economic relations:
  • Countries’ capital relationships evolve—India was a capital importer in 1994 with the UK, but now is a capital exporter.
  • Challenge: Difficult to permanently categorize countries as capital importers/exporters.
• Legal inconsistency:
  • Different BIT models imply divergent stances on legal norms (e.g., investor-state dispute settlement [ISDS] mechanism).
  • Undermines India’s credibility in international negotiations and multilateral forums such as the UN Commission on International Trade Law (UNCITRAL), currently discussing ISDS reforms.

Most Favoured Nation (MFN) Clause - Misunderstood Origins and Role:

• Clarifying MFN history:
  • Experts claim: MFN is rooted in multilateral treaties.
  • Historical fact: MFN clauses existed in bilateral commercial treaties since the 17th century.
• Importance in BITs:
  • The MFN clause ensures non-discriminatory treatment among treaty partners.
  • Contrary to claims, MFN clauses enhance treaty fairness and uphold the principle of equality.

Towards a Balanced BIT Framework:

• One model, better design: The key lies not in multiple models, but in creating a single, balanced BIT that:
  • Ensures investment protection.
  • Retains sovereign regulatory space.
  • Projects a principled and predictable stance in international law.

Conclusion:

• India must craft a BIT model that adapts to changing global investment patterns while maintaining consistency and legal credibility.
• A strategic, balanced, and investor-conscious model is vital for securing both foreign investments and the interests of Indian investors abroad.