A BIT of a reset with a wider debate

GS-II: International Relations | Governance | Treaty-making

GS-III: Economy | Foreign Investment | Investment Protection

Context

• India is revising its Model Bilateral Investment Treaty (BIT) and the revised text is expected to be placed before the Union Cabinet.
• Finance Minister Nirmala Sitharaman, in the Union Budget 2025, stated that India was considering revamping the 2015 Model BIT.
• The 2015 Model BIT emerged from a broader appraisal process after several foreign investors sued India for alleged BIT breaches.
• Two key outcomes of this appraisal were unilateral termination of BITs and adoption of a new Model BIT as the basis for fresh negotiations.

Why Revise the 2015 Model BIT?

• Limited treaty-making: India has concluded only a handful of BITs based on the 2015 model over roughly the last decade.
• Imbalance in objectives: While BITs seek to balance investment protection and the State’s right to regulate, India’s 2015 model is seen as tilting heavily towards the latter.
• Investor concerns: Capital-exporting countries have doubts regarding the legal protection available to their investments in India.
• Existing risks: These concerns are aggravated by high regulatory risks, not-so-well-developed governance models and a tardy judicial system.
• Need for balance: The revision aims to bring the framework closer to the centre between investment protection and regulatory autonomy.

Two Core Components of BIT Review

• Substantive & procedural reforms: Experts have suggested easier access to international arbitration for treaty claims, stronger substantive investment protections and greater investment facilitation measures.
• Process of review: Equal attention is required to the process through which the revised model is prepared, so that the outcome is robust and credible.

Democratic Deficit in Treaty-Making

• All-affected principle: Since international economic treaties can significantly affect citizens, those affected should have an opportunity to participate in decision-making.
• Meaning of democratic deficit: It refers to insufficient oversight of technocrats, bureaucracies and the executive, including the political executive, when treaty frameworks are negotiated behind closed doors.
• Inadequate parliamentary supervision: Lack of or inadequate Parliamentary oversight can create a democratic deficit.
• Limited external consultation: Absence of consultation with experts, industry and civil society organisations is another concern.

International Practices

• United Kingdom & Australia: Negotiated treaty texts are placed before Parliament before ratification, allowing Parliament to express its views.
• Norway: Conducted two rounds of public consultations, in 2008 and 2015, on its updated Model BIT.
• Colombia: Released its Model BIT for public consultation.
• India: Circulated the draft 2015 Model BIT for public comments in March 2015.
• Law Commission of India: The consultation enabled the LCI to assemble experts and examine the draft; its 260th Report made recommendations for improving the Model BIT.
• Final adoption: India adopted the revised Model BIT in December 2015, though not all LCI recommendations were reflected.

Suggested Consultative Process

• External expert group: Form a core team of experts from universities, research institutions and think tanks, including international lawyers and economists, to act as a sounding board for the government.
• Stakeholder consultation: Invite industry bodies, arbitrators, law firms and civil society organisations to provide their views.
• Public consultation: Prepare a draft and place it in the public domain, inviting comments from the public.
• Parliamentary discussion: Place the draft Model BIT before Parliament for discussion and involve relevant Department-related Parliamentary Committees.
• Meaningful participation: Consultation should not be merely a box-ticking exercise but should genuinely uphold participatory democracy.
• Respect dissent: A meaningful process should include engagement with dissenting views.

Way Forward

• Balance investment protection and regulatory autonomy.
• Strengthen investor confidence through appropriate legal and procedural protections.
• Institutionalise stakeholder consultation in treaty-making.
• Enhance Parliamentary oversight of international economic agreements.
• Ensure transparency and public participation in the formulation of the Model BIT.
• Consider divergent and dissenting perspectives rather than limiting consultation to formal compliance.

Conclusion

India’s revision of its Model BIT provides an opportunity to create a balanced investment framework that protects foreign investment while preserving the State’s regulatory space. Equally important, the process of treaty-making must itself be transparent, participatory and consultative to ensure democratic legitimacy and a robust outcome.

UPSC Mains Practice Question

Q. India’s Model Bilateral Investment Treaty needs to balance investment protection with the State’s right to regulate, while ensuring greater democratic participation in treaty-making. Discuss. (250 words, 15 marks)