A BIT of a reset, with a wider debate

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‘In the last decade or so, India has managed to conclude only a handful of BITs based on its 2015 model’ | Photo Credit: Getty Images/iStockphoto

It has been widely reported that India is revising its model bilateral investment treaty (BIT) and that the revised text will soon be placed before the Union cabinet.

The seeds of this were sown when Finance Minister Nirmala Sitharaman said in the Union Budget speech in 2025, that India was considering revamping its 2015 Model BIT.

The treaty was adopted as part of a broader appraisal process launched after several foreign investors sued India for BIT breaches.

The two key outcomes of this appraisal were the unilateral termination of BITs and the adoption of a new model BIT as the basis to launch new negotiations.

In the last decade or so, India has managed to conclude only a handful of BITs based on its 2015 model.

This reveals the many limitations of the 2015 model, which many scholars, including this writer, have repeatedly pointed out.

If investment treaties aim to balance the two competing objectives of investment protection (one end of the spectrum) and the state’s right to regulate (the other end), the Indian model BIT tilts heavily towards the latter.

This creates doubts among countries that export capital to India about the legal protection afforded to their investments.

These doubts are exacerbated by high regulatory risks, not-so-well-developed governance models, and an agonisingly tardy judicial system.

As these concerns have grown louder, India has rightly decided to revisit the model, apparently with the objective of pulling the pendulum back towards the centre.

Any process of review of BITs has two core components.

The first is on what substantive and procedural changes need to be made to the law; and the second is about what processes need to be followed to ensure the robustness of the outcome.

The first aspect has attracted considerable attention, with experts pointing out the necessary legal reforms, such as making it easier for foreign investors to use international arbitration for treaty claims, enhancing the substantive protections for foreign investment, and having more investment facilitation measures.

However, the second issue has not been deliberated much.

Since international economic treaties, including those on foreign investment, have a conspicuous impact on citizens, it brings into play the all-affected principle in democracy.

In other words, whether those affected by, say, an investment treaty should have a right to participate in decision-making.

If those affected are not able to participate effectively in decision-making, say, through their elected representatives or other civil society organisations, it raises concerns about ‘democratic deficit’ in the treaty-making process.

Originating in debates in Europe, ‘democratic deficit’ refers to the insufficient oversight of technocrats and bureaucracies, or the executive in general, including the political executive, who negotiate and evolve treaty frameworks behind closed doors.

The lack of oversight may take many forms, such as a lack of or inadequate parliamentary supervision of the treaty-making process, and an absence of an external consultative process with other stakeholders, including subject-matter experts and civil society organisations.

To overcome the charge of ‘democratic deficit’, many countries, such as the United Kingdom and Australia, mandatorily place the text of the negotiated treaty before ratification on the floor of the Parliament, enabling it to express its views.

Specifically, in the context of model BITs, Norway held two rounds of public consultations — in 2008 and 2015 — on an updated draft.

Likewise, Colombia released its model BIT for public consultation.

India, too, in March 2015, circulated its draft 2015 model BIT for public comment.

This provided an opportunity for the Law Commission of India (LCI) to assemble a team of experts to study the draft model BIT.

The LCI, in its 260th report, made recommendations on how to improve the draft model BIT.

India finally adopted the revised version in December 2015, though not all of the LCI’s recommended changes were reflected in it.

Presumably, the government must have already undertaken widespread internal consultations, i.e., intra-governmental deliberations on the model BIT.

As regards external consultation, the following may be considered.