India's 2016 Model Investment Treaty Is Costing the Nation Billions in Foreign Direct Investment

Gist India's highly restrictive 2016 Model Bilateral Investment Treaty BIT has led to a mass dismantling of its international investment agreements, causing a severe qualitative drop in net Foreign Direct Investment FDI . By mandating an abnormally long domestic litigation period before allowing international arbitration, the framework has deterred fresh foreign capital, resulting in net investment outflows when reinvested earnings are excluded. For an aspirant, understanding this mechanism is crucial, as it highlights how domestic regulatory bottlenecks—rather than global economic conditions—can actively suppress capital inflows and economic growth. Background Bilateral Investment Treaties BITs are agreements between two countries designed to protect and promote foreign investments. Following a series of international arbitration losses, India adopted the 2016 Model BIT to safeguard its regulatory space. Prior to this, standard treaties globally allowed foreign investors to seek international arbitration after a short consultation period typically three to six months . The 2016 Model drastically altered this by requiring investors to exhaust domestic legal remedies—litigating in Indian courts for a mandatory period of five years —before approaching an international tribunal. While Finance Minister Nirmala…