Building confidence, BIT by BIT (The
Mains Paper 3 : Economy
Prelims level : Bilateral investment treaties
Mains level : Bilateral investment treaties significance and scenarios
- Indian bilateral investment treaties need to strike a balance between
foreign investor interests and those of the state.
Highlighting the current economic scenario
- The GDP growth rate is at a five-year low, domestic consumption is
sinking, the business confidence index has plunged, and India has recorded
its highest unemployment rate in the last 45 years.
- To add to this list of woes is a claim made by Arvind Subramanian,
India’s former Chief Economic Adviser, that India’s GDP has been
- Foreign direct investment (FDI) equity inflows to India in 2018-19
contracted by 1%, according to the government’s own data.
- After an increase of 22% and 35% in 2014-15 and 2015-16, respectively,
FDI equity inflows began tapering off since 2016-17 with the growth rate
falling to 9% and then to 3% in 2017-18.
- This contraction in FDI inflows comes at a time when global supply
chains are shifting base as a result of the ongoing trade war between the
U.S. and China. India has failed to attract firms exiting China.
- Many of these supply chains have relocated to Vietnam, Taiwan, Malaysia
- India is clearly not the natural/first option for these firms for a host
of reasons, such as poor infrastructure, rigid land and labour laws, a
deepening crisis in the banking sector and a lack of structural economic
Bilateral investment treaties terminated
- The decline in the FDI growth rate, despite the well-advertised
improvement in India’s ease of doing business rankings, interestingly, has
coincided with India’s decision, in 2016, to unilaterally terminate
bilateral investment treaties (BITs) with more than 60 countries; this is
around 50% of the total unilateral termination of BITs globally from 2010 to
- Unilateral termination of BITs on such a mass scale projects India as a
country that does not respect international law.
- India also adopted a new inward-looking Model BIT in 2016 that
prioritises state interests over protection to foreign investment.
- Since studies have shown that BITs positively impacted foreign
investment inflows to India.
Bad regulation in bilateral investment treaties
- True, India’s BITs gave extensive protection to foreign investment with
scant regard for state’s interests a characteristically neoliberal model.
- This design flaw could have been corrected by India negotiating new
balanced treaties and then replacing the existing ones with the new ones
instead of terminating them unilaterally, which has created a vacuum.
Reasons behind BIT claims increased
- Importantly, the design flaw was not the real reason for the increasing
number of BIT claims.
- A large number arose either because the judiciary could not get its act
together (an example being inordinate delays in deciding on the
enforceability of arbitration awards) or because it ruled in certain cases
without examining India’s BIT obligations such as en masse cancellation of
the second generation telecom licences in 2012.
- Likewise, the executive — the Manmohan Singh government — got the income
tax laws retrospectively amended in 2012 to overrule the Supreme Court’s
judgment in favour of Vodafone and cancelled Devas Multimedia’s spectrum
licences in 2011 without following due process, thus adversely impacting
Mauritian and German investors.
- In correcting the pro-investor imbalance in India’s BITs, India went to
the other extreme and created a pro-state imbalance as evident in the Model
- Indian BITs should strike a balance between interests of foreign
investors and those of the state.
- A certain degree of arrogance and misplaced self-belief that foreign
investors would flock to India despite shocks and surprises in the
regulatory environment should be put to rest.
- Clarity, continuity and transparency in domestic regulations and a
commitment to a balanced BIT framework would help India project itself as a
nation committed to the rule of law, both domestically and internationally,
and thus shore up investor confidence.
- As the 2019 World Investment Report confirms, since India is fast
becoming a leading outward investor, balanced BITs would also help in
protecting Indian investment abroad.
Q.1) With respect to “World Food India (WFI) 2019”, consider the following
1. It is the first edition of biennial event, which will in New Delhi.
2. It is the gathering of all global and domestic stakeholders in Food
Processing Sector with the objective of promoting food processing sector at
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
Q.1) What are the reasons behind BIT claims increased?