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Editorial of the Day (10th Feb): Bilateral Investment Treaties

Context: Finance Minister Nirmala  Sitharaman announced plans to negotiate Bilateral Investment Treaties with trade partners to attract more foreign direct investment.

Bilateral Investment Treaties: An Overview

  • Definition: BITs are international agreements between two countries to promote and protect mutual investments.
  • India’s BIT History: Initiated in the mid-1990s to attract foreign investments with treaty-based protections.
  • First BIT: India’s first BIT was signed with the UK in 1994.

India’s BIT Challenges and Reforms:

  • Adverse Legal Outcomes: Faced with costly legal disputes, including a significant case against Cairn Energy.
  • 2016 BIT Model: Introduced as a response to financial burdens from legal claims, the model was viewed as protectionist.
  • Criticism: The 2016 model lacked key international law principles and mandated exhausting local legal remedies before arbitration.
  • Termination and Renegotiation: India terminated 68 out of 74 BITs with the intent to renegotiate under the new model.

Impact on Foreign Direct Investment (FDI):

  • FDI Decline: Notable decrease in FDI equity inflows recorded in April-September 2023.
  • Negotiation Difficulties: India has struggled to renegotiate BITs under the stringent 2016 model, affecting FDI.

Steps Towards Progressive BITs:

  • FTA Negotiations: India is negotiating an FTA with the UK, potentially omitting the requirement to exhaust local remedies.
  • Parliamentary Recommendations: In 2021, suggestions were made for timely dispute settlements and building local arbitration expertise.
  • Ease of Enforcement: India’s low ranking in contract enforcement highlights the need for BIT regime improvements.

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Future Outlook:

  • $5-Trillion Economy Goal: Progressive BITs are crucial for achieving India’s economic ambitions.
  • Government Approach: Current efforts show a positive trend, but a tailored strategy is necessary for sustainable cross-border growth.
  • Recommendations Implementation: Critical for improving India’s investment climate and ensuring robust trade and investment stability.

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