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The Union Finance Ministry is reviewing India’s 2015 Model Bilateral Investment Treaty (BIT) to make it more investor-friendly while protecting India’s sovereign regulatory interests. The revised Model BIT is expected to be placed before the Union Cabinet.

The review comes against the backdrop of changing global investment patterns, rising Overseas Direct Investment (ODI) by Indian companies and declining net FDI inflows into India.

Why is India Reviewing the 2015 Model BIT?

• India's experience with earlier investment treaty negotiations has highlighted the need to balance investor protection with regulatory autonomy. The government is also considering global best practices and the growing international presence of Indian companies.
• A major shift is that India is no longer only concerned with protecting foreign investors entering India. Indian companies are increasingly investing abroad, creating a need for future BITs to protect Indian investments in foreign jurisdictions as well.

What is a Bilateral Investment Treaty?

• A BIT is an agreement between two countries to promote and protect investments made by investors of one country in the territory of the other. It generally provides safeguards such as fair and equitable treatment, protection against unlawful expropriation and mechanisms for resolving investment disputes.
• A key feature is Investor-State Dispute Settlement (ISDS), under which an investor may directly bring a dispute against the host government before an international arbitration mechanism.
• BITs differ from trade agreements: BITs primarily focus on investment protection, whereas trade agreements primarily govern trade in goods and services. BIT disputes can also expose governments to greater legal and financial risks because investors may directly initiate arbitration.

Issues with India's 2015 Model BIT

One of the most debated provisions is the Local Remedies Clause, which requires foreign investors to exhaust domestic legal remedies for five years before approaching international arbitration.

Foreign investors and several developed countries have considered this requirement restrictive, and it has reportedly contributed to difficulties in concluding new BITs.

The government is therefore examining this and other provisions and considering a negative-list approach, under which only specified critical sovereign interests would remain non-negotiable while greater flexibility would be provided in other areas.

Changing FDI–ODI Landscape

• India's investment position has changed considerably. Gross FDI increased from about $82 billion in 2020–21 to $95 billion in 2025–26, even as net FDI declined substantially.
• At the same time, Indian companies' ODI increased from $11 billion in 2020–21 to $28 billion in 2024–25 and $34 billion in 2025–26.
• This reflects the growing internationalisation of Indian businesses. Companies are increasingly establishing a presence in foreign markets rather than relying exclusively on exports.

Significance of the Review

The revised framework could help India attract higher-quality FDI while protecting policy space, provide greater protection to Indian companies investing overseas, and improve integration with global investment and production networks.

However, the central challenge will be to maintain a balance between investor confidence and India's sovereign right to regulate in the public interest. India must also avoid excessive exposure to investor litigation while providing sufficient policy predictability to attract long-term investment.

Way Forward

India needs a BIT framework that provides predictable and transparent investment rules without unnecessarily restricting government policy space. Greater flexibility in negotiations, stronger investor outreach, and carefully defined safeguards against excessive ISDS claims can help reconcile investment promotion with regulatory sovereignty.