Negotiating BITs with trade partners to boost FDI
- In the Interim Budget speech, the Finance Minister highlighted India's efforts to negotiate new Bilateral Investment Treaties (BITs).
- Objective: To enhance foreign direct investments (FDI), especially in the face of declining FDI inflows.
- FDI equity inflows in India decreased by 24% to $20.48 billion in April-September 2023.
Background
- New BITs became scarce after India adopted the model BIT in 2016.
- India aims to pursue economic integration with western nations through free trade agreements and investment treaties.
- The FM emphasized the importance of negotiating BITs to encourage sustained foreign investment, aligning with the 'first develop India' spirit.
- FDI inflow during 2014-23 reached $596 billion, marking a golden era and doubling the inflow during 2005-14.
Challenges with BITs
- Trade partners raised concerns about India's insistence on the 'exhaustion of local remedies' clause in the model BIT.
- It advocates resolving investment-related disputes locally before resorting to international arbitration.
- India's rank of 163 out of 190 countries in ease of enforcing contracts poses a challenge to FDI inflows.
- It took 1,445 days and 31% of the claim value for dispute resolution.
Historical Perspective
- Prior to 2015, India had BITs with 83 countries/regions.
- India suspended BITs with 68 countries/regions post-2015, urging renegotiations based on the 2016 model BIT.
- Six BITs are still in force, with the suspension triggered by high-profile defeats in investor-state disputes.
Prelims Takeaway
- Bilateral Investment Treaties (BITs)
- Free Trade Agreement (FTAs)
- Foreign Direct Investment (FDI)