India Reviews BIT Framework To Enhance Foreign Investment Climate

The Indian government is considering reforms to its bilateral investment treaty (BIT) regime as it seeks to attract more foreign investment in the face of increasing global economic uncertainty and more competition for capital.

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According to a report by Economic Times, the policymakers are seeking to make some provisions in investment treaties more investor-friendly while providing safeguards to protect India’s policy-making discretion and prevent abuse of the treaty benefits.

Arbitration Rules Under Review

One of the key areas being examined is the requirement that foreign investors first pursue remedies through India’s domestic legal system before seeking international arbitration.

Under the 2016 Indian model BIT, investors must pursue local legal remedies for a period of five years before they can initiate international dispute resolution proceedings. India, however, was more flexible in its 2024 investment pact with the UAE, reducing this period to three years.

The government is likely to do more tweaking after the latest review to strike a balance between investor confidence, and legal and regulatory safeguards.

MFN Clause Being Evaluated

Officials are also assessing whether future treaties should include an expanded most-favoured nation (MFN) forward clause.

Such a provision would allow existing treaty partners to automatically receive investment-related benefits that India may offer to countries signing future agreements. The proposal is among several measures being discussed as part of the broader review of the BIT framework.

According to the report, any relaxation of treaty provisions would be accompanied by safeguards designed to prevent treaty shopping, a practice in which investors route investments through third countries to access more favourable treaty benefits.

Officials cited in the report indicated that consultations with stakeholders are still underway and that no final decision has been taken.

Push For New Investment Agreements

The review comes as India continues negotiations on investment agreements with more than two dozen countries and regional blocs. These include discussions involving the European Union, the U.S., Russia, Saudi Arabia, Qatar and Oman.

The government is reassessing its treaty framework at a time when countries are competing aggressively to attract investments in sectors such as artificial intelligence, advanced manufacturing and strategic technologies.
Policymakers are also paying close attention to capital flows, reflecting geopolitical developments and volatility of global financial markets.

Foreign Investment Trends

Foreign direct investment into India has shown signs of improvement after a period of moderation. According to figures cited in the report, India’s gross foreign direct investment inflows reached a record $94.5 billion in FY26. Earlier, total FDI had declined from $85 billion in FY22 before recovering to more than $80 billion in FY25.

The ongoing review of the BIT framework reflects the government’s effort to align investment rules with evolving global conditions while continuing to provide legal certainty for overseas investors. Changes approved after the consultations could have an impact on the architecture of future investment pacts and India’s attractiveness as an investment destination.