India takes steps to reform its investment policy framework after approving new model BIT
India has started to send official notices to terminate bilateral investment treaties (BITs) to 57 partner countries with which it has BITs that have already expired or will expire in the near future.
Moreover, to the 25 countries with which India has BITs with initial durations expiring from July 2017 onward, India has started to propose signing joint interpretative statements to clarify ambiguities in treaty texts, for example, with respect to the definitions of investor and investment and the exclusion of taxation matters.
These bold steps follow the approval of India’s new model BIT in December 2015, which narrows the scope of the standard of treatment of investors (avoiding the term “fair and equitable treatment”), leaves out the MFN clause and includes investor obligations. While retaining investor–state arbitration, the model requires investors to exhaust local remedies before commencing international arbitration against the host state.
India’s foreign investment policy has shifted in response to an increased number of challenges to government measures and policies by foreign investors under investment treaties: seven arbitration cases are known to have been initiated against India since 2012.
Renegotiating investment treaties pursuant to the new model and embedding its revised policy in ongoing trade and investment negotiations—with partners such as Canada, European Union and the United States, and in the context of RCEP—will be India’s next political challenge.
A despondent letter sent on May 25, 2016 by EU Trade Commissioner Cecilia Malmström to India’s commerce and finance ministers illustrates the challenge. She warned that India’s notices of termination to “a significant number” of EU member states could “have serious consequences” if replacement treaties are not in place. According to her, it could “create a gap in investment protection and consequently discourage EU enterprises from further investing in India,” as investors “may perceive the investment climate as deteriorating.”