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With new Bilateral Investment Treaties (BITs) drying up after India adopted the model BIT in 2016, Finance Minister Nirmala Sitharaman during her Interim Budget speech said that India is negotiating BITs with trade partners to boost the inflow of foreign direct investments (FDI).
A relook at BITs comes at a time when India is pursuing economic integration with western nations such as the United Kingdom (UK) and the European Union through free trade agreements and investment treaties. These negotiations assume significance as India scores dismally in ease of enforcing contracts, hurting FDI inflows.
“For encouraging sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners, in the spirit of ‘first develop India’. The FDI inflow during 2014-23 was $596 billion marking a golden era. That is twice the inflow during 2005-14,” Sitharaman said.
BITs had dipped as a number of trade partners were against India’s insistence on favoring ‘exhaustion of local remedies’ clause in the model BIT that stressed on resolving investment-related legal disputes locally before going to international arbitration. But trade partners complain about the delay in resolution of disputes.
India ranked 163 out of 190 countries in ease of enforcing contracts, taking 1,445 days and 31 per cent of the claim value for dispute resolution, as per the World Bank’s ‘Ease of Doing Business 2020’ report.
Before 2015, India had BITs with 83 countries or regions but India suspended BITs with 68 countries/regions with a request to re-negotiate based on the model 2016 BIT. Six BITs are still in force. The suspension was triggered by several high profile defeats in investor-state disputes.
Foreign direct investment (FDI) equity inflows in India declined 24 per cent to $20.48 billion in April-September 2023, according to government data. The total FDI — which includes equity inflows, reinvested earnings and other capital — contracted 15.5 per cent to $32.9 billion during the period under review against $38.94 billion in April-June 2022.
DPIIT Secretary Rajesh Kumar Singh in an interview to The Indian Express said that the the combination of strong growth, improving infrastructure will certainly ensure that long term investment flows into India will not get affected by these blips that may happen in a particular year due to a combination of geopolitical issues and economic setbacks in some of the developed countries.
