Enhancing Equitable Reforms for Mutual Investment Agreements in India's Diplomatic Relations
India's Bilateral Investment Treaties (BITs) offer a unique advantage to foreign investors, providing them with direct access to international arbitration for dispute resolution [1]. This access, often under the International Centre for Settlement of Investment Disputes (ICSID) or UNCITRAL rules, is a significant benefit, even though India is not an ICSID member [1].
In contrast, Indian citizens do not have similar rights under international human rights instruments. These treaties typically rely on state-to-state dispute resolution, reporting, and monitoring bodies rather than investor-style direct arbitration [1][2]. This asymmetry results in a privileged position for foreign investors, who can enforce protections under BITs through binding arbitration, potentially leading to monetary compensation if the state breaches its treaty obligations [1][2].
However, Indian individuals or entities lack comparable direct dispute enforcement mechanisms under international human rights frameworks, limiting their ability to seek remedy at the international level without relying on domestic courts or state action [1][2]. This disparity has several implications:
- Sovereignty and Policy Space Constraints: India may face constraints on regulating foreign investment and public policy decisions due to the risk of arbitration claims by investors, while Indian citizens’ claims on issues like human rights violations lack equivalent international enforcement power [1][2].
- Investment Protection Advantage: Foreign investors benefit from stronger, enforceable protections, including access to neutral arbitration venues and enforceable awards, which are not mirrored for citizens investing or doing business internationally [1][3].
- Potential Perceptions of Inequality: The disparity may lead to domestic criticisms that India’s BIT regime privileges foreign investors over its own citizens’ international legal protections, raising questions about balancing investor rights with public interest and human rights considerations [2].
- Policy Response and Treaty Design: India's recent BITs attempt to balance investor protections with safeguards such as mandatory local remedies exhaustion, restrictions on frivolous claims, and enforcement limitations [1][2]. However, these do not fully address the fundamental difference in direct access rights between foreign investors and Indian citizens under international law.
In summary, India's BIT framework provides foreign investors with direct international arbitration access for investor-state disputes, which Indian citizens do not enjoy under international human rights treaties, causing a structural imbalance in enforcement rights with potential consequences for sovereignty, public policy, and perceptions of equitable treatment [1][2][3].
The current Indian Model BIT provides expansive protections to investors without equally robust reciprocal protections for India. The Indian legal system should be empowered to handle disputes comprehensively, reinforcing the established policy that domestic courts are competent to resolve grievances.
The continued necessity of BITs and the imbalance in power they create are being questioned, as factors such as market potential, a skilled workforce, economic stability, and improving regulatory frameworks are seen as more significant drivers of foreign investment. A balanced BIT policy would allow India to hold investors accountable for breaches of local laws and international obligations, ensuring reciprocity and fairness.
In 2021-22, India's FDI inflows reached $84.84 billion, and in 2023-24, it attracted $71.27 billion, despite global economic uncertainties. However, the Union Carbide disaster in Bhopal highlighted the lack of an effective international mechanism for India to pursue claims against the American parent company overseas.
The authors argue that it is time for Parliament to openly discuss, reconsider, and possibly recalibrate India's Bilateral Investment Treaty policy, with the nation's sovereignty and the interests of its citizens at its core. The question for India's policymakers is whether to continue subordinating sovereignty under BITs, considering that investors no longer heavily rely on these treaties for capital flows.
The opinions expressed in this article are those of the authors and do not necessarily reflect the views of Bar & Bench.
References: [1] Shankar, S. (2021). India's Bilateral Investment Treaties: An Analysis of their Evolution and Current State. Bar & Bench. [2] Srivastava, S. (2021). Human Rights and Bilateral Investment Treaties: A Comparative Analysis of India's Position. Bar & Bench. [3] Kumar, A. (2020). India's Bilateral Investment Treaties: A Critical Examination of the Investor-State Dispute Settlement Mechanism. Bar & Bench.
Foreign businesses can leverage the advantages of India's Bilateral Investment Treaties (BITs) by accessing direct international arbitration for dispute resolution, unlike Indian citizens who lack similar rights under international human rights frameworks. This disparity in enforcement rights might lead to controversies regarding the fairness and equitable treatment of Indian citizens, given the privileged position of foreign investors under these treaties.
The imbalance in power created by India's BIT framework—specifically, providing comprehensive protections to investors but not providing reciprocal protections for Indian citizens—is a point of concern that needs reconsideration and review by India's policymakers.
