Union Budget 2025 | Govt to revamp model bilateral investment treaty to make it investor-friendly

New Delhi: The government on Saturday announced a revamp of the current model Bilateral Investment Treaty (BIT) to make it more investor-friendly and attract foreign players.

While presenting the Union Budget, Finance Minister Nirmala Sitharaman said that as proposed in the Interim Budget, the country signed Bilateral Investment Treaties (BIT) with two countries last year.

"To encourage sustained foreign investment and in the spirit of 'first develop India', the current model BIT will be revamped and made more investor-friendly," she said.

The announcement assumes significance as only a few countries have accepted the existing model tax treaty, and most of the developed nations have expressed their reservations on the tax with regard to provisions like resolution of disputes.

These investment treaties help in protecting and promoting 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.

Last year, the centre had announced implementation of these treaties with UAE and Uzbekistan.

Presently, India is negotiating this treaty with countries such as the UK, Saudi Arabia, Qatar, and the European Union (EU).

Economic think tank Global Trade Research Initiative (GTRI) said that the announcement that India will revamp its 2015 Model BIT is a necessary move.

GTRI Founder Ajay Srivastava said that India's approach to investment treaties over the past decade has cost it valuable foreign investments and created unnecessary roadblocks in international negotiations.

"A shift in policy signals that New Delhi is finally acknowledging the need to align with global investment norms," he said adding the decision to unilaterally cancel 77 out of its 80-plus BITs by 2016, following adverse arbitration rulings in high-profile cases such as Cairn Energy, Vodafone, and White Industries, was an "extreme" reaction.

With India now approaching to become third largest economy and a hub for global manufacturing, the government cannot afford to maintain an investment regime that discourages investors, Srivastava said.

"A modernized BIT framework must strike the right balance safeguarding India's policy space while ensuring that foreign investors have confidence in legal protections," he said adding India must not only restore credibility in its investment policies but also demonstrate better negotiation capabilities.

Rumki Majumdar, Economist, Deloitte India, said that India needs investment and one of the factors to help bring investment is ease of doing business.

According to Economic Survey 2024-25, India must "pull out all the stops" and improve tax certainty and stability to attract more foreign direct investments (FDI) into the country.

It has stated that there is room to improve tax certainty and tax stability in matters such as APA (Advance Pricing Agreement).

Foreign direct investment (FDI) inflows into India have crossed the USD one trillion milestone in the April 2000-September 2024 period, firmly establishing the country's reputation as a safe and key investment destination globally.

About 25 per cent of the FDI came through the Mauritius route. It was followed by Singapore (24 per cent), the US (10 per cent), the Netherlands (7 per cent), Japan (6 per cent), the UK (5 per cent), UAE (3 per cent) and Cayman Islands, Germany and Cyprus accounted for 2 per cent each.

The key sectors attracting the maximum of these inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

Union Budget 2025 | Nirmala Sitharaman, as Finance Minister, presented her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', the Modi govt gave income tax relief for those making up to Rs 12 lakh per year in salaried income. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.