The new Prime Minister, Narendra Modi, in a recent television interview, said that there is a need to review India’s foreign direct investment (FDI) policy. Any effort to review the FDI policy should include within its ambit the review of India’s Bilateral Investment Treaties (BITs). BITs are largely perceived as international legal instruments aimed at protecting and promoting foreign investment—countries accept restrictions on the exercise of their public power in return for greater foreign investment flows. Prominently, BITs enable foreign investors to directly bring claims against host country at international arbitration forums. This BIT arbitration is not like ordinary commercial arbitration against a country challenging a private action such as contractual breaches, etc. Since BITs control the exercise of public power, all BIT arbitrations involve adjudication of public power of host country. Global evidence shows BIT arbitrations have included adjudication and review of a wide gamut of public functions like monetary policy, taxation measures, sovereign debt restructuring, environmental and health policies.
India started its BIT sojourn in 1994, as part of the economic reforms programme, with the aim to attract foreign investment. Till date, India has entered into more than 80 BITs with 72 of them being enforced. Most provisions of these BITs are foreign-investor friendly, capable of legal interpretations giving precedence to investment protection over exercise of regulatory power by Indian state. Till the end of 2010, there was negligible discussion in India on the interface between BITs and regulatory power despite growing global evidence about such interface from Latin America and elsewhere. However, two key developments post 2011 triggered a change in India’s position on BITs. First, towards the end of 2011, a BIT tribunal in the White Industries v India case, for the first-time, found that India violated its BIT obligations (India-Australia BIT). Second, other foreign investors, like Vodafone and Telenor, issued BIT arbitration notices to India, challenging various regulatory measures like imposition of retrospective taxation and cancellation of 2G telecom licenses. According to UNCTAD, there are about a dozen known BIT claims that have been made against India. The most recent addition to this is the BIT arbitration notice issued by Louis Dreyfus Armateurs, a French shipping services and maritime transportation company, after the firm pulled out from Haldia Port venture two years ago.
These two developments led India to decisively launch a process of review of BITs including the model text of its BIT, although