Bilateral Investment Treaties (BITs) provide for the promotion and protection of investments by one country’s investors in the other. Such a promotion of investment is obviously reciprocal in nature. Although these agreements take place between different governments, the ultimate beneficiaries are business entities.
The importance of such treaties lies in the basic need of safety of all foreign investors regarding their investment in an alien country. This is mostly done by committing fair and equitable treatment (FET), non-discrimination, granting most favourable nation status (MFN), ability to repatriate proceeds, protection from exploitation and setting up dispute resolution mechanisms, such as arbitration, for alleged breaches of the agreed protections directly with the investor and the host country.
Since Dr. Manmohan Singh opened up the Indian Economy in 1991, India has signed more than 80 BITs with countries from all over the world. The recent pitch for increase in FDI followed by the ‘Make in India’ campaign by the Modi government signifies the importance of such treaties.
here However, in April 2017, the Indian Govt. cancelled 58 of these BITs; and what is the reason? India was featured as ‘one of the most sued countries’ in 2015-16 by the UNCTAD (United Nations Conference on Trade and Development). The trend began with India losing a claim in 2011 brought by White Industries of Australia alleging excessive judicial delays in enforcing a commercial arbitration award through the Indian courts. Then in 2015, a sum total of 19 countries sued India for alleged breaches in protecting their investments. This led to the government formulating the 2015 Model BIT in accordance to which, now renegotiations with these 58 countries are pitched to take place. The new model has given prominence to ‘enterprise based’ definition of investment which narrows down the scope of protected investments and reduces the state liability under Investor-State Dispute Settlement claims to a greater extent. Another important facet of the new model is that the MFN status has been dropped as many countries have cried foul play for giving preference. The new model, albeit harsh on some points, promises an increase in foreign investment soon.
However, given the slow pace with which negotiations are done, the future of investments into India and going out from India to these countries, is very dim. These terminations will result in foreign investments becoming vulnerable to regulation abuses.
follow link Also, developed countries like the EU, Canada and the US, have many reservations regarding the new model. Many of them are now sceptical given that the MFN status has been dropped from the policy.
Transparency, is the need of the hour today. Doubts regarding the structure of the new model should be clarified by the government, including what all protections would be given to prospective investors in the near future. The sooner the government clarifies all these intricacies, the sooner foreign investors can come to a decision. Uncertainties lead to investors seeking advice, delaying negotiations and contemplating the possibilities of a complete business fallout. ‘Make in India’ is at stake here. It stands a chance for utter failure and hence, it would be in the interest of public policy that the government finds a solution to this urgently.