Context- India’s economy is witnessing a pivotal moment as the Finance Minister announced a strategic move to negotiate Bilateral Investment Treaties (BITs) during the presentation of the interim Union budget.
Evolution of Bilateral Investment Treaties (BITs) in India
- The mid-’90s marked a pivotal moment in India’s economic coverage because the country initiated BITs to create a beneficial environment for FDI.
- The primary goal was to sign a commitment to protect the investments of individuals and companies from partnering nations.
- The signing of the first BIT between India and the United Kingdom in 1994 laid the inspiration for a sequence of agreements that could turn out to be instrumental in India’s global economic integration.
The Proliferation of BITs as Economic Diplomacy (Late 90s to 2000s)
- BITs in India earlierd into strategic gadgets that reciprocally promoted and safeguarded investments in each other’s territories.
- As India sought to place itself as a global investment destination, those treaties have was essential in signing its commitment to protecting the rights and interests of foreign traders.
- This period witnessed a surge in the range of BITs, reflecting India’s popularity of the role foreign capital performed in stimulating home industries and infrastructure development.
Challenges and Disputes (2010s)
- The significance of BITs came to the forefront in the year 2010 with the settlement of the primary-ever investor treaty declared in India.
- Subsequent occasions, along with the unfavorable award in the Australia-India BIT dispute (White Industries v Republic of India) in 2011, highlighted the complexities and challenges of dealing with disputes arising from these agreements.
- By 2015, India observed itself entangled in 17 recognised BIT claims, with the Cairn Energy Plc case standing out prominently.
- These demanding situations brought about a vital rreview of India’s technique, leading to the adoption of the 2016 model BIT.
Adoption of the 2016 Model BIT and Policy Shift
- The adoption of the 2016 model BIT marked a tremendous shift in India’s approach.
- It was visible as a defensive measure, resulting in the termination of a massive wide variety of existing treaties.
- The 2016 model BIT, but, was criticised for its absence of key international regulation doctrines, along with ‘truthful and equitable treatment’ and ‘most favoured nations.’
- Additionally, it introduced a demand for buyers to exhaust local remedies earlier than resorting to global arbitration, slowing down the dispute decision procedure.
Problems Associated with 2016 Model of BIT and Implications
- Protective Nature
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- The creation of the 2016 Model BIT marked a paradigm shift in India’s approach to bilateral investment treaties.
- Positioned as a protecting degree, this model was a reaction to the demanding situations and unfavorable consequences faced in earlier disputes.
- It resulted within the termination of a giant wide variety of current treaties, signalling an intent to recalibrate the phrases of engagement with overseas buyers.
- However, the protective nature of the model raised concerns about its impact on the overall splendor of India as an investment destination.
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- Absence of Key International Law Doctrines
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- A first rate grievance of the 2016 model BIT was its departure from hooked up global law doctrines.
- Key principles such as “fair and equitable treatment” and “most favoured country” had been conspicuously absent.
- The omission of those principles raised questions on the extent of safety and equity afforded to foreign buyers.
- Investors and prison professionals expressed apprehensions about the potential ambiguity in interpreting and imposing investment agreements, similarly complicating the panorama for global traders.
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- Requirement for Exhausting Local Remedies
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- One of the substantial modifications delivered by way of the 2016 model BIT was the requirement for buyers to exhaust local treatments before resorting to global arbitration.
- While this provision aimed to encourage the utilisation of domestic dispute resolution mechanisms, it additionally posed demanding situations in terms of delays and uncertainties.
- Investors, faced with the want to navigate neighborhood criminal systems, determined the system time-consuming and, at times, useless.
- This requirement added a further layer of complexity to dispute resolution, likely discouraging foreign buyers.
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- Adverse Impact on FDI and Renegotiation Challenges
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- The outcomes of the 2016 model BIT were reflected in the decline of FDI in India.
- According to government facts, FDI equity inflows decreased through 24% to $20.48 billion in April-September 2023.
- The termination of existing treaties and the demanding situations posed by way of the brand new model made it difficult for India to renegotiate phrases with different countries, impacting its capability to draw foreign investments.
- The Cairn Energy Plc case, ensuing in a sizable award towards the Indian government, was emblematic of the demanding situations confronted underneath the 2016 model BIT.
- Recommendations, Policy Reforms Outlined via the Government Post Challenges Faced via 2016 BIT Model.
Parliamentary Standing Committee Recommendations
- In 2021, the Parliamentary Standing Committee on External Affairs made several crucial guidelines to revisit the existing BIT regime.
- These tips geared toward addressing the challenges posed via the 2016 model BIT and fostering a more investor-pleasant environment.
- Among these pointers, there has been a sturdy emphasis at the timely agreement of disputes through pre-arbitration consultations and negotiations.
- This proactive approach seeks to streamline the dispute resolution system and minimise the burden on both foreign buyers and the Indian criminal system.
Recommendations to Address India’s Ranking in Ease of Contract Enforcement
- India’s ranking in ease of settlement enforcement, currently status at 163 out of 190, stays abysmally low.
- Recognising the correlation between an efficient prison framework and foreign investment splendor, the pointers from the Parliamentary Standing Committee serve as a call to action.
- Timely review of treaties and aligning them with global high-quality practices was imperative to enhance the ease of doing business, reinforcing India’s commitment to growing a beneficial investment climate.
- Free Trade Agreement (FTA) with the UK
- As a part of the continued policy reforms, India is endeavouring to conclude a free alternate agreement (FTA) with the UK.
- This strategic flow has visible over 14 rounds of negotiations. A most important stumbling block in these negotiations has been related to the settlement of disputes.
- The proposed FTA is likely to dispense with the requirement of local remedies, presenting a mechanism for timely settlement of disputes through international arbitration.
- This pragmatic technique recognises the significance of quick dispute resolution in fostering global trade relationships.
Conclusion
- Robust global trade and solid investments might be critical to India’s pursuit of a $5-trillion economic system.
- A modern approach to BITs might be a vital factor to attract and sustain long-time period foreign investments and the government’s renewed push is a step in the proper route.
- However, it must do away with its one-size-fits-all technique, even as paving the way for rapid yet sustainable growth in cross-border flows.
Source: Indian Express
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