Finance minister Nirmala Sitharaman said on Saturday that the country needs a new model for bilateral investment treaties (BITs), saying the 2016 template is “inadequate” for meeting countries’ requirements and that investment treaties should be kept separate from future free trade agreements.
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Speaking at the inauguration of the first postgraduate certificate course on international commercial and investment treaty arbitration, Sitharaman emphasised that including BITs within free trade agreements (FTAs) often reduces them to “a negotiating card,” compromising their fundamental purpose.
“Issues related to BIT are so unique to the sovereign that we think BIT should be negotiated as a standalone negotiation rather than make it as a part of an FTA agreement,” said the finance minister, who mentioned an overhaul was in the works while presenting the Union Budget on February 1.
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The announcement comes at a crucial time as India negotiates FTAs with major economies, including the United Kingdom and European Union, which favour comprehensive agreements encompassing both trade and investment deals simultaneously.
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Sitharaman observed that even developed economies are moving away from “old-fashioned” BITs that prioritised investor protection but “inadvertently” led to situations where sovereign space was “completely left open and loose,” failing to adequately protect national interests.
Drawing from the experiences of emerging economies and the Global South, including India, the minister noted these nations have “borne the brunt” of such treaties as they encroached upon their policy space. She indicated the forthcoming model BIT would “restore what is the right of the Parliament” and sovereign authority, particularly regarding taxation matters.
The minister referenced her recent budget statement, confirming India’s signing of BITs with two countries in 2024. “As proposed in the Interim Budget… the current model BIT will be revamped and made more investor-friendly,” she said in her Budget speech on February 1, adding that the new framework would help reduce arbitration costs.
Citing United Nations Conference on Trade and Development (UNCTAD) data, Sitharaman revealed that of 1,368 registered investment treaty cases, approximately 70% are pursued against developing nations under old-generation treaties. She highlighted concerns about wealthy commercial interests purchasing arbitration cases and pursuing lengthy legal battles across jurisdictions, putting sovereign states at a disadvantage.
“The average amount sought by investors in Investor-State Dispute Settlement (ISDS) cases is $1.1 billion, which remains a considerable burden for the Global South,” Sitharaman said. She noted that corporations have employed ISDS mechanisms to challenge government policies, environmental regulations and public interest laws.
The minister expressed concern about arbitrators often disregarding host countries’ judicial decisions. “While arriving at an arbitration outcome, even findings related to crimes like fraud and corruption which have been established through the court of law in the host country, put the states in a conflicting position to accept the award,” she explained.
Looking ahead, Sitharaman outlined her vision for future investment treaties, emphasising they must provide enhanced regulatory powers to nations while offering clear guidance to arbitrators. “I strongly believe, moving forward, the framework of investment treaties should capture: National interests in relation to regulatory powers, strengthened guidance for arbitrators in resolving disputes, keeping in mind nations’ interests and circumstances as well,” she said.