New Bilateral Investment Model: 2-Year Local Remedy Window, No MFN Clause

The Centre is reshaping India's Bilateral Investment Treaties (BITs) with three defining principles:

A minimum two-year period for exhausting local remedies before international arbitration.

No most-favoured nation (MFN) clause in future agreements.

Exclusion of tax-related provisions from investment pacts.

Officials say the move is aimed at protecting sovereignty and ensuring Parliament's powers are not bypassed. "Local remedies cannot be skipped by heading straight to international arbitration," a senior government source noted, adding that taxation will remain outside the scope of BITs.

The current BIT framework, adopted in 2016, already mandates exhaustion of domestic remedies. However, the revised model shortens the waiting period compared to the earlier five-year requirement, with flexibility for one-year cooling windows in select negotiations.

Finance Minister Nirmala Sitharaman has emphasized that BITs should be negotiated separately from free trade agreements, handled by specialists, and designed to balance investor protection with national interests. Economists and policymakers remain divided on the impact of BITs on foreign direct investment, with some arguing that cumulative treaties matter more than individual agreements.

India's recalibration follows global trends, with countries like Australia shifting towards State-to-State Dispute Settlement (SSDS) instead of traditional investor-state arbitration.