The outbreak of Covid-19, which resulted in a lengthy lockdown, has fueled fears of a coming economic downturn in India. In order to help the economy recover, the government has created the Atmanirbhar Bharat Abhiyan, which aims to make local enterprises more competitive and supply value chains more integrated.
However, in order for India to become really self-sufficient in manufacturing, indigenous production must be accompanied by a more receptive attitude toward foreign investments such as FDIs and FIIs. Despite India’s ranking among the top 10 global FDI destinations in 2019, inflows have remained below 2% of GDP. This is despite India leapfrogging 79 positions in the World Bank’s “Ease of Doing Business” rankings from 142 in 2014 to 63 in 2020. Examining the lacunae arising from the Model Bilateral Investment Treaty, 2016, is one technique to explain such sub-optimal flows.
A bilateral investment treaty (BIT) is an agreement that establishes the terms and conditions for private investment in another country by nationals and firms of one country. Foreign direct investment is the term for this form of investment (FDI). Trade pacts are used to create BITs. The “friendship, trade, and navigation pact” was a nineteenth-century precursor of the BIT (FCN). Most BITs provide a variety of assurances to investments undertaken in the territory of another Contracting State, which typically include fair and equitable treatment, expropriation protection, free transfer of means, and full protection and security. Many BITs have an alternative dispute resolution mechanism that allows an investor whose rights under the BIT have been violated to go to international arbitration, usually under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), rather than using the host State in its own courts. Investor-state dispute settlement is the name of this mechanism.
Pakistan and Germany signed the world’s first Bilateral Investment Treaty (BIT) on November 25, 1959. There are currently over 2500 BITs in force, covering almost every country on the planet and, in particular, the number of bilateral investment treaties and preferential trade agreements has exploded in recent years; nearly every country is a member of at least one. Environmental features have become increasingly frequent in international investment agreements, such as BITs, and are normally negotiated on the basis of their own “model” texts (such as the Indian or US model BIT). States have attempted to include the right to regulate in their new BITs as part of an effort to reform substantive norms of investment protection. BITs protect investments by setting constraints on the host state’s regulatory behaviour, preventing undue interference with the foreign investor’s rights. The following are examples of these conditions: Imposing duties on host countries to give foreign investment fair and equitable treatment (FET) and not to discriminate against it. Allowing revenues to be repatriated under certain circumstances agreed upon by the two countries. Most crucially, permitting private investors to sue host states for monetary compensation if the latter’s sovereign regulatory measures are in violation of the BIT.
Investors have rights under BITs, but only States have obligations. NGOs have spoken out against the use of BITs, claiming that they are primarily meant to protect foreign investors and do not take into account environmental, labor, social, or natural resource commitments and norms. Furthermore, when such clauses are agreed upon, the resulting formulation is legally quite open-ended and unpredictable. A counter-claim could be a mechanism to rebalance investment law by permitting States to bring claims against investors as a means of sanctioning investor misconduct.
Initiatives like Make in India 2.0 and the liberalization of FDI caps across sectors are positive moves. Foreign investors may be hesitant to invest in India until the government takes a more balanced approach in the Model BIT 2016. As multinational corporations consider shifting their investments away from China, now is an excellent opportunity to review and update the Model BIT, moving away from the current inward-looking protectionist strategy and toward a more pragmatic one.