Budget promise on BITs calls for five key changes

In her budget speech, finance minister Nirmala Sitharaman announced an important update regarding bilateral investment treaties (BITs). She stated, "To encourage sustained foreign investment and in the spirit of 'first develop India,' the current model BIT will be revamped to be more investor-friendly." This declaration carries three significant messages.

- Prabhash Ranjan

First, it acknowledges that signing BITs can help India attract higher levels of foreign direct investment. Second, the government recognises that the current Model BIT, which was adopted in 2015, is not particularly favourable to foreign investors. Third, and most importantly, India will update its existing Model BIT to make it more accommodating for investors.

A typical BIT should balance two competing objectives: protecting foreign investments and safeguarding the state's right to regulate in the public interest. India's older BITs prioritised investment protection, while the 2015 Model BIT shifted too far towards state interests, neglecting foreign investors. We need a comprehensive overhaul of the Model BIT to find a middle ground. The following key changes should be implemented.