India’s Model BIT: Revisiting the Investment Treaty Framework

04 Oct 2026

Tags: Economy   Planning & Growth   Economic growth

Source: The Hindu

Context: Nearly a decade after adopting the 2015 Model Bilateral Investment Treaty (BIT), India is revising its model to make it more responsive to changing investment practices and more investor-friendly.

• The Union Budget 2025-26 announced the proposed revamp.
• The review comes amid changes in India’s own treaty practice and the global international investment regime, particularly regarding investor protection, sustainable development and investor-state dispute settlement (ISDS).

Why Did India Adopt a Cautious Model in 2015?

• The 2015 Model BIT emerged against concerns arising from the White Industries Australia Limited v. Republic of India (2011) award and wider concerns over investor-state arbitration.
• It adopted a relatively cautious framework through:
  • A narrower definition of investment;
  • Carefully defined substantive protections;
  • Regulatory exceptions protecting the State’s policy space; and
  • A requirement to pursue judicial and administrative remedies for at least five years before initiating treaty arbitration.

India’s Treaty Practice Has Evolved

• India has subsequently entered into newer-generation investment agreements with countries including the UAE, Uzbekistan and Israel, showing greater flexibility compared with the 2015 Model.
• The India-UAE BIT reduced the local-remedies period to three years.
• The India-Israel Bilateral Investment Agreement, which entered into force in July 2026, also provides for a three-year period for pursuing local remedies.
• These agreements suggest that India's post-2015 practice has moved beyond some of the more restrictive features of the original Model BIT.

What is a Model BIT?

• A Model BIT is generally a negotiating framework, rather than a treaty that automatically applies to every country.
• It communicates India's preferred approach regarding investor rights, State obligations, dispute settlement and regulatory powers.
• Individual BITs can depart from the model depending on the economic relationship and negotiating priorities of the parties.
• A well-designed model should therefore provide consistency while retaining sufficient flexibility for country-specific negotiations.

Changing International Investment Regime

• UNCTAD identifies a broader shift towards investment facilitation, international cooperation and sustainable development, alongside more precisely defined investor protections.
• There is also increasing attention to alternatives to traditional Investor-State Dispute Settlement (ISDS).
• UNCITRAL Working Group III is examining reforms relating to ISDS, including:
  • A possible permanent tribunal and appellate mechanism;
  • Rules concerning damages and compensation; and
  • Dispute prevention and settlement mechanisms.
• India's new Model BIT therefore needs to respond to these wider changes rather than simply reproduce the 2015 framework.

Key Issues for the Revised Model BIT

1. Most Favoured Nation (MFN) Clause

• Most Indian investment treaties have not included an MFN provision, thereby limiting an investor's ability to claim more favourable treatment available under India's other treaties.
• If an MFN clause is introduced, its scope must be precisely defined, particularly regarding dispute settlement.
• In Maffezini v. Spain, an MFN clause was used to access more favourable dispute-settlement provisions contained in another treaty.
• In contrast, Plama Consortium v. Bulgaria rejected importing dispute-settlement provisions through an MFN clause without sufficiently clear treaty language.
• Recent treaty practice demonstrates that MFN clauses can expressly exclude dispute-settlement procedures from their scope.

2. Investor Obligations and Counterclaims

• India's newer treaty practice increasingly recognises that investment treaties need not focus exclusively on investor rights.
• The India-Uzbekistan BIT expressly permits the State to raise counterclaims against an investor or investment.
• The revised model could therefore specify investor obligations and clearly establish when States may bring counterclaims.
• This can strengthen the principle of responsible investment by balancing investor protections with corresponding responsibilities.

3. Dispute Settlement and Local Remedies

• The 2015 Model BIT required investors to exhaust judicial and administrative remedies for five years before initiating treaty arbitration.
• India's subsequent use of a three-year period in the UAE and Israel agreements indicates greater flexibility.
• The revised model could reconsider the five-year requirement based on India's experience since 2015.
• Greater emphasis could also be placed on consultation, mediation and dispute prevention before arbitration, consistent with discussions at UNCITRAL.

4. Expropriation and Fair and Equitable Treatment

• The provisions dealing with expropriation and Fair and Equitable Treatment (FET) need precise drafting to reduce interpretational disputes.
• At the same time, treaty language must preserve the State's right to regulate in the public interest.
• The objective is to protect legitimate investments without unduly restricting governments' ability to pursue public policy.

5. Sustainable Development and Responsible Investment

• Sustainable development and responsible investment should not remain merely policy declarations in the treaty.
• Where India intends to impose obligations on investors, these should be expressed as clear and enforceable legal obligations.
• This would help establish a more balanced framework between investment protection and public-interest regulation.

Way Forward for India

• The revised Model BIT should be clearer, more precise and workable, rather than simply being more favourable to either investors or States.
• It should incorporate lessons from India's post-2015 treaty practice, while responding to reforms in the international investment regime.
• A balanced framework should simultaneously provide credible investor protection, policy space for the State, investor responsibilities and effective dispute prevention.
• The model should remain sufficiently flexible to permit country-specific modifications during bilateral negotiations.

Bilateral Investment Treaty (BIT) An international agreement between two countries establishing rules for treatment and protection of investments made by investors of one country in the territory of the other. BITs commonly address expropriation, non-discrimination, FET, MFN treatment and dispute settlement. Investor-State Dispute Settlement (ISDS) A mechanism through which a foreign investor can bring a dispute against the host State, generally through international arbitration. It is controversial because of concerns over regulatory autonomy, costs, interpretation of treaty standards and the balance between investor rights and public interest. Fair and Equitable Treatment (FET) A commonly used investment-treaty standard requiring the host State to provide certain standards of fairness, consistency and due process to foreign investors. Its broad interpretation in some investment disputes has contributed to debates over the appropriate scope of State regulatory powers. Most Favoured Nation (MFN) A treaty principle under which investors of one treaty partner receive treatment no less favourable than that accorded to investors covered by specified other treaties, subject to the exact wording of the clause. Its application to dispute-settlement provisions remains particularly important because treaty language can determine whether an investor can rely on provisions from another treaty.