Model BIT 2016: A Treaty That Is Costing India Billions

Source: Original editorial ↗ The Indian Express

The Lift Line

“The cost of what we did is not what we lost. It is what we have been forgoing, year after year, and will go on forgoing until logic replaces obstruction.”

Why This Editorial Matters for Your Exam

Surjit S Bhalla, economist and chairperson of the Technical Expert Group for India’s first official Household Income Survey, argues in The Indian Express of 2 October 2026 that India’s 2016 Model Bilateral Investment Treaty (BIT) has cost it foreign investment. Investment treaties connect GS2 (international agreements) and GS3 (FDI, external sector). The column is polemical; the figures are the writer’s and should be quoted as his.

GS Paper 2: Bilateral agreements affecting India’s interests. GS Paper 3: Investment models; effects of liberalisation; external sector.

Background and Context

What a BIT does. A BIT protects investors from one country in the other: against expropriation without compensation, discrimination and unfair treatment, and lets them take disputes to investor-state dispute settlement (ISDS), usually international arbitration.

India’s turn.

Year	Event
1994	First BIT, with the United Kingdom
2011	White Industries v India award: India held liable for delays in its courts
2012 onward	Claims over retrospective taxation (Vodafone, Cairn)
2015-16	New Model BIT adopted; most old BITs terminated
2024	BIT with the UAE
2025	BIT with Israel

Key features of the 2016 model.

Feature	Effect
Exhaustion of local remedies	Investor must litigate in Indian courts for five years before arbitration
No most-favoured-nation clause	Investors cannot borrow better terms from other treaties
Enterprise-based definition	Narrows what counts as protected “investment”
Taxation excluded	Tax measures cannot be challenged

The Analysis

1. An outlier. Five years of local litigation compares with the global norm of a three-to-six-month consultation period, the writer says. Newer treaties cut it to three years; he asks why not the global norm.

2. A shrinking network. Treaties in force fell from 73 (2015) to 29 (2017), 16 (2019) and eight (2021). None of the survivors covers a major source of capital.

3. Net FDI is small. Gross inflow was a record $94.5 billion in 2025-26, but repatriation of $53.6 billion and outward investment of $33.3 billion left net FDI at $7.65 billion, about 0.18 per cent of GDP, he writes.

4. Spin is no substitute. Counting long-held portfolio stakes as FDI would not add a dollar and would break the OECD Benchmark Definition, which draws the line by control, not holding period.

Data and Institutions Vault

Prelims-grade facts:

Treaties:

• India’s Model BIT: adopted December 2015, used from 2016; five-year exhaustion of local remedies.
• Recent BITs: UAE (2024), Israel (2025); local-remedies period cut to three years.
• ISDS: investor-state dispute settlement, often under UNCITRAL rules or at ICSID.

Definitions:

• FDI vs FPI: a stake of 10% or more in a listed company is treated as FDI in India; below that, portfolio investment.
• Net FDI: gross inflows minus repatriation and disinvestment, minus Indian outward FDI.
• India is not a member of ICSID.

⚠️ Watch the trap: Bilateral trade agreements (FTAs, CEPAs) and bilateral investment treaties are different instruments; a CEPA may or may not carry an investment chapter.

The Debate

For the writer’s view. Investor protection lowers perceived risk; a narrow treaty network and long local litigation deter long-term capital.

The other side. The model followed real losses in arbitration over court delays and taxation; protecting regulatory space is legitimate; and the largest investors come without treaties.

The balanced verdict. Keep the right to regulate, but shorten the local-remedies period and sign treaties with major capital sources.

How to Think About This

Separate gross from net. “Record FDI” headlines often refer to gross inflows. For capital formation, look at net FDI after repatriation and outward investment.

Diagram-in-Words

Takeaway Box

• 2016 Model BIT: five years of local remedies before arbitration; no MFN; tax excluded.
• Network: 73 treaties in force (2015) to 8 (2021), the writer says.
• Net FDI 2025-26: $7.65 billion, about 0.18% of GDP (writer’s figures).
• Ask: a new model on global norms.

Sources: The Indian Express, Department of Economic Affairs, Model BIT, UNCTAD Investment Policy Hub

Source: Model BIT 2016: A Treaty That Is Costing India Billions — Ujiyari.com | Free UPSC & State PCS Editorial Analysis

Key Arguments at a Glance

Surjit S Bhalla argues that India’s 2016 Model Bilateral Investment Treaty was designed to obstruct rather than attract investment, that it dismantled India’s treaty network, and that it has contributed to very low net foreign direct investment; it should be replaced with a treaty on global norms.

✓ Supporting

• The 2016 model required a foreign investor to pursue remedies in Indian courts for five years before international arbitration, against the global norm of a three-to-six-month consultation; newer treaties with the UAE (2024) and Israel (2025) cut this to three years.
• Treaties in force fell from 73 in 2015 to 29 in 2017, 16 in 2019 and eight by 2021, and none of the survivors covers a significant source of capital, the writer says.
• Gross FDI inflow was a record $94.5 billion in 2025-26, but after repatriation of $53.6 billion and outward investment of $33.3 billion, net FDI was only $7.65 billion, about 0.18% of GDP, according to the writer.
• Reinvested earnings of $25.6 billion exceeded net FDI more than threefold; counting long-held portfolio stakes as FDI, an idea reported in the press, would add no new money and contradict the OECD benchmark definition.

⚠ Counter

The government’s case for the 2016 model, not presented by the writer: arbitration awards such as White Industries (2011) and challenges to retrospective taxation (Vodafone, Cairn) showed older treaties exposed sovereign regulation to costly claims; the model protects regulatory space for tax, public health and environment, and large investors such as the US invest without any treaty.

→ Way Forward

The writer wants a new BIT on global norms, with a short consultation period instead of years of local litigation. Ujiyari’s synthesis: a revised model with a two-to-three-year or shorter remedies window, a clear right-to-regulate clause, carve-outs for taxation and public interest, and a push to sign treaties with major capital sources.