In a move away from the model Bilateral Investment Treaty (BIT) that the government designed in 2015 to prevent adverse judgments in multibillion-dollar disputes in international courts, the union government has eased arbitration norms for UAE investors, the treaty text released on Monday showed.
UAE investors in India will have to exhaust domestic remedies for at least three years before commencing arbitration, the treaty text indicated. This contrasts with the model BIT, which required investors to attempt resolving disputes through India’s legal system for at least five years before seeking international arbitration.
The BIT was signed on February 13 in Abu Dhabi, UAE, and came into force on August 31, 2024, the Finance Ministry said in a statement on Monday. Enforcement of this pact with the UAE ensures the continuity of investment protection for investors from both countries, as the earlier Bilateral Investment Promotion and Protection Agreement (BIPPA) between India and the UAE, signed in December 2013, expired on September 12 this year, the ministry said.
“The India–UAE BIT 2024 is expected to increase the comfort level and boost the confidence of investors by assuring a minimum standard of treatment and non-discrimination, while providing for an independent forum for dispute settlement by arbitration. However, while providing investor and investment protection, balance has been maintained regarding the State’s right to regulate, thus providing adequate policy space,” the ministry stated.
Notably, the government had annulled BITs that were based on old model texts framed in 1993 after receiving adverse judgments in multibillion-dollar disputes in international courts. To prevent this, the model BIT included the clause “exhaustion of local remedies,” emphasising state rights over investor rights.
Think tank Global Trade Research Initiative (GTRI) explained that the model BIT requires investors to attempt resolving disputes through India’s legal system for at least five years before seeking international arbitration. In contrast, the India-UAE BIT reduces this period to three years, giving investors quicker access to Investor-State Dispute Settlement (ISDS).
“While this makes the treaty more investor-friendly, it also weakens India’s ability to settle disputes domestically, increasing the likelihood of arbitration cases that could challenge India’s regulatory decisions. Local remedies exhaustion means that investors must first try to resolve their disputes using the legal system of the host country before they can take the matter to international arbitration. Reducing the local remedies exhaustion period to three years weakens India’s ability to resolve disputes internally, increasing the likelihood of cases being brought to international arbitration,” GTRI added.
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The think tank warned that this shift could lead to more frequent and costly arbitration proceedings, potentially challenging India’s regulatory decisions on a broader range of investment issues. “It signals a softer stance on the protection of sovereign decision-making compared to the model BIT,” the think tank noted.
Other key features of the pact include provisions for a closed asset-based definition of investment, with coverage extending to portfolio investment, as well as the treatment of investment with obligations for no denial of justice, no fundamental breach of due process, no targeted discrimination, and no manifestly abusive or arbitrary treatment.
“Unlike India’s model BIT, which excludes portfolio investments such as stocks and bonds, the India-UAE BIT includes them as protected investments. This broadens the scope of the treaty, allowing investors with passive financial holdings to use the ISDS mechanism. This shift increases India’s exposure to disputes over financial instruments, even those that don’t significantly contribute to economic development, moving away from the model BIT’s focus on long-term investments,” GTRI said.
Meanwhile, the UAE has made an initial investment commitment of $2 billion to set up a food processing facility in India to procure high-quality products, Union Minister of Commerce and Industry Piyush Goyal said on Monday.
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Addressing the media after the 12th Meeting of the India-UAE High-Level Joint Task Force on Investments (HLJTFI) in Mumbai on Monday, Goyal said food parks in India would lead to higher incomes for farmers, jobs in the food processing sector, and food security for the UAE.
“This matter (the setting up of a food processing facility by the UAE) has been under discussion for quite some time with different arms of the UAE government and different states in India. Now, we are looking at progressing faster to ensure investments in food processing can materialise in India, with UAE investors and the UAE market, along with other Gulf markets, being ready export destinations for Indian products,” Goyal told reporters.
When asked about the investment, the Minister said, “Approximately $2 billion is the initial commitment that the UAE has made to invest in the food processing industry and the food park logistics required to move the material to the UAE.” The background work for the food park is complete.
Both nations have also agreed to set up a small working group between the central government, the state governments involved, and the UAE to take forward the establishment of the food corridor on a mission-mode basis, he added.
