India negotiating bilateral investment treaties with different countries to promote foreign inflow: FM

India is negotiating bilateral investment treaties to promote foreign investment, but faces challenges in aligning with global practices.

India is negotiating bilateral investment treaties with different countries with a view to promote foreign inflows, Finance Minister Nirmala Sitharaman said on February 1. She said that foreign direct investment (FDI) has doubled during 2014-23 to $596 billion compared to the inflow received during 2005-14.

"For encouraging sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners, in the spirit of 'first develop India'," she said while presenting the interim Budget 2024-25.

India is negotiating bilateral treaties with countries, such as the UK. These investment treaties help in promoting and protecting investments in each other's countries. These pacts are important as India has earlier lost two international arbitration cases against British telecom giant Vodafone and Cairn Energy plc of the UK over the retrospective levy of taxes.

Commenting on bilateral investment treaties, economic think tank GTRI (Global Trade Research Initiative) said that India needs to align its treaties with global investment practices, address the negative perception caused by the mass treaty cancellations and reflect on its negotiation skills. New agreements should ideally resolve these concerns, it said in a statement.

GTRI said that India has cancelled 77 of its over 80 bilateral investment treaties (BIT) by 2016, as they didn't align with its interests. "Now, it is renegotiating with 37 countries using the restrictive 2016 Model BIT, which may lead to protracted negotiations due to its narrow 'investment' definition, vague terms, omission of principles like 'fair and equitable treatment', and Most-Favoured Nation status," GTRI co-founder Ajay Srivastava said. He added that the model BIT also demands investors seek local solutions for at least five years before arbitration, making new BITs challenging for other countries.

Foreign direct investment (FDI) equity inflows in India declined 24 per cent to USD 20.48 billion in April-September 2023, according to government data. The total FDI — which includes equity inflows, reinvested earnings and other capital — contracted 15.5 per cent to USD 32.9 billion during the period under review against USD 38.94 billion in April-June 2022.

The top investor countries include Singapore, Mauritius, the US, the UK, and the UAE. Computer software and hardware, trading, services, telecommunication, automobile, pharma and chemicals are some of the key sectors that attract FDI into India.