India Model BIT: New Rules for Overseas Investment Protection

India is nearing a key decision on its investment treaty framework, with Economic Affairs Secretary Anuradha Thakur saying the revised Model Bilateral Investment Treaty, or Model BIT, will soon be sent to the Cabinet for approval.

The review comes as India’s investment landscape changes in an important way. While attracting foreign direct investment (FDI) into India remains a policy priority, Indian companies are increasingly investing overseas. That means future investment treaties must protect not only foreign companies investing in India but also Indian businesses operating and investing abroad.

Thakur described this as an “entirely new dimension” in India’s treaty negotiations. Her comments indicate that the government is considering changes to the existing framework while retaining provisions it believes are useful for protecting Indian investors overseas.

The review could also affect one of the most debated provisions in India’s 2015 Model BIT: the requirement that foreign investors pursue domestic legal remedies for five years before initiating international arbitration in many investment disputes.

What is India’s Model BIT and why does it matter?

A Bilateral Investment Treaty is an agreement between two countries designed to establish rules for protecting investors from one country when they invest in the other.

Such treaties can provide protections relating to issues such as discrimination, expropriation, treatment of investments and dispute settlement. They are intended to give investors greater certainty when committing capital in another jurisdiction.

India’s Model BIT serves as a template for negotiating such agreements with other countries. It is not itself a treaty with a foreign country. Instead, it sets out India’s preferred approach to the rights and obligations that should appear in its investment agreements.

That makes the current review significant for both sides of the investment relationship. The final framework could influence how India negotiates investment treaties, how foreign investors assess legal protections and how Indian companies seek protection when they invest abroad.

Why India is reviewing the 2015 Model BIT

India adopted its existing Model BIT in 2015 after a period of growing concern over international investment disputes involving the country.

The 2015 framework represented a significant shift in India’s approach. It sought to balance investment protection with the government’s right to regulate in areas such as public Health, the environment and other matters of public interest.

One of its most discussed provisions concerns the exhaustion of local remedies.

Under the 2015 model, a foreign investor generally has to pursue domestic legal remedies for five years before being able to bring an investment dispute to international arbitration under the treaty framework. Critics have argued that this creates a lengthy procedural hurdle for investors and could reduce the attractiveness of treaty protection.

The government is now considering whether that requirement should be changed. But Thakur made clear that the review is much broader than the five-year provision.

Will India reduce the five-year local-remedies requirement?

The government has not announced a final decision on whether the five-year requirement will be shortened or removed.

Thakur said the review remains open and that officials are examining several clauses in the Model BIT rather than focusing exclusively on local remedies.

This is important because the final document could represent a broader recalibration of India’s investment policy rather than a simple amendment to one controversial provision.

One approach being considered involves identifying particularly sensitive areas or “red flags” for India and putting those provisions into a negative list, while determining how much protection can be offered elsewhere.

Such an approach could allow India to preserve regulatory safeguards in areas it considers strategically important while offering investors clearer protections in other parts of the treaty framework.

Indian companies investing abroad have changed the equation

The biggest new factor in the government’s review is the rise in overseas investment by Indian companies.

For years, the central focus of India’s investment policy was how to attract foreign capital into the country. Today, Indian businesses themselves have become increasingly active investors overseas.

Thakur said this means India must consider the protection of its own companies when negotiating investment treaties with other countries.

The logic is straightforward. If an Indian company establishes a manufacturing operation, acquires a business or invests in infrastructure overseas, it can face regulatory, political or legal risks in the host country. An investment treaty can potentially provide protections against certain forms of unfair or discriminatory treatment.

As Indian companies expand internationally, the value of those protections increases.

This creates a more balanced policy objective for New Delhi: India wants to remain attractive to foreign investors while also ensuring that Indian investors receive meaningful protection when they take capital abroad.

India’s overseas investment has risen sharply

The change is visible in India’s overseas direct investment figures.

According to the figures cited in the source material, Indian companies’ overseas investment rose from about $11 billion in 2020-21 to $28 billion in 2024-25 and then to $34 billion in 2025-26.

That represents a substantial increase in only a few years.

There are several reasons why Indian companies may choose to invest directly in overseas markets rather than serving those markets exclusively through exports.

One increasingly important factor is the changing structure of global supply chains. Chief Economic Adviser V Anantha Nageswaran said in December that Indian companies are increasingly required to establish a presence in overseas markets if they want to sell effectively into them.

In other words, a company may need to manufacture, distribute or maintain operations closer to customers rather than simply shipping products from India.

That trend can increase India’s overseas investment while simultaneously changing the country’s Balance of Payments picture.

Why rising overseas investment matters for India’s FDI numbers

The distinction between gross FDI and net FDI is crucial to understanding the current debate.

Gross FDI refers to the inflow of foreign direct investment into India before accounting for certain outward flows and repatriation. Net FDI gives a different picture because it reflects inflows after taking into account factors such as repatriation and investment by Indian companies abroad.

The figures cited by the source show that gross FDI into India increased from about $82 billion in 2020-21 to a record $95 billion in 2025-26.

That suggests India continues to attract substantial foreign capital.

However, net FDI inflows fell sharply over the same broad period. They declined from almost $44 billion in 2020-21 to less than $1 billion in 2024-25 before recovering to around $7 billion in 2025-26.

The difference is significant because it shows why looking only at gross inflows can give an incomplete picture of India’s external investment position.

Foreign investors also repatriated more money

The decline in net FDI was not caused solely by Indian companies investing overseas.

The source material says foreign investors repatriated more than $105 billion during 2024-25 and 2025-26 combined. At the same time, overseas investment by Indian companies increased.

These two developments together reduced India’s net FDI position substantially even though gross inflows remained strong.

For policymakers, that creates a complicated situation. India wants to attract more long-term foreign capital, but it also wants domestic companies to become internationally competitive. Encouraging Indian businesses to invest abroad is not necessarily a negative development. In fact, Thakur described the rise in overseas investment as evidence of greater maturity in the Indian private sector.

The challenge is ensuring that India’s external investment position remains strong enough to support broader economic and balance-of-payments objectives.

Why the government does not see overseas investment as a bad thing

Thakur’s comments reveal an important distinction in India’s policy approach.

India does not appear to view rising overseas investment by Indian companies as something that should simply be restricted to improve domestic FDI numbers.

Instead, the government sees the international expansion of Indian companies as a sign of a more mature private sector.

That approach recognizes that successful Indian businesses increasingly compete globally. Establishing subsidiaries, manufacturing facilities, offices and distribution networks abroad can help companies access customers, technologies, supply chains and new markets.

The policy challenge is therefore not necessarily to stop capital from leaving India. It is to ensure that Indian companies can invest abroad while India continues to attract enough high-quality foreign investment into the domestic economy.

What about fears of Enforcement Directorate action?

Thakur also rejected the suggestion that foreign investors are staying away from India primarily because they fear possible action by law-enforcement agencies such as the Enforcement Directorate.

Her response was that foreign capital is primarily looking for returns and stability and that India offers both.

At the same time, she acknowledged that the government needs to address concerns that investors may have about the country’s regulatory and enforcement environment.

Thakur said enforcement agencies are moving toward more procedure-driven and transparent approaches. She also pointed to efforts to reduce the “criminal content” of laws so that serious offences remain subject to criminal enforcement while less severe regulatory violations are treated differently.

Her comments indicate that the government recognizes that investor confidence depends not only on headline economic growth but also on the predictability and clarity of regulation.

Why legal certainty matters to foreign investors

For a multinational company deciding where to invest billions of dollars, market size is only one part of the calculation.

Investors also consider the stability of regulations, the ability to enforce contracts, the independence and effectiveness of dispute-resolution mechanisms, taxation, infrastructure, labour conditions and the likelihood that government policy will change unexpectedly.

Investment treaties operate within that broader environment.

A treaty cannot eliminate every business risk, nor does it guarantee an investor a particular financial return. What it can potentially do is establish a set of legal protections that apply when an investor believes its investment has been treated in violation of the treaty.

That is why the design of India’s Model BIT matters. A framework that is too restrictive could make treaty protections less attractive to investors. A framework that is too broad could constrain the government’s ability to regulate in the public interest or expose it to unwanted disputes.

India is trying to find a middle ground

The government’s current review appears to be focused on finding that balance.

Thakur’s comments suggest that officials are not simply trying to make India’s investment treaties more investor-friendly at any cost. Instead, they are examining which protections India can provide while preserving policy space in areas considered sensitive.

The proposed use of a negative-list approach could become particularly important in this context.

Under such a framework, India could identify areas where it wants to retain stronger safeguards while offering broader commitments in other areas. That could make negotiations more targeted and potentially reduce disagreements over provisions that India considers fundamental.

The approach also reflects the fact that India is no longer solely a capital-importing economy. Indian businesses increasingly operate as international investors themselves.

What the new Model BIT could mean for companies

For foreign companies considering India, the revised Model BIT could influence how they evaluate treaty protection when making long-term investments.

If the government changes the local-remedies requirement, investors could potentially gain faster access to international arbitration in qualifying disputes. But the exact effect will depend on the final language adopted by the government and the treaties eventually negotiated with individual countries.

For Indian companies investing overseas, the changes could be equally important.

A stronger emphasis on reciprocal investment protection could give Indian businesses greater confidence when expanding into markets where legal or political risks are higher. The usefulness of such protection would depend on whether India’s treaty partners agree to comparable provisions in their own negotiations.

The road to Cabinet approval

The immediate next step is for the government to complete the review and send the revised Model BIT to the Union Cabinet.

Thakur said this is expected to happen soon, although the source material does not provide a specific date for the Cabinet’s consideration.

Once approved, the model would serve as India’s negotiating template for future investment treaties. It could also influence discussions with countries where India is seeking to establish or update bilateral investment arrangements.

The Cabinet decision will therefore be watched by foreign investors, Indian multinational companies and legal professionals involved in international investment disputes.

What happens next for India’s FDI strategy?

The Model BIT review is only one part of India’s broader effort to attract investment.

Thakur emphasized that gross FDI has increased but argued that the amount remains insufficient for an economy of India’s size. That means the government is likely to continue working on policies intended to make India more attractive to foreign capital.

At the same time, Indian companies are becoming more global. Their growing overseas presence means India’s investment policy must increasingly work in two directions: bringing capital into India and protecting Indian capital when it moves abroad.

That is the central change behind the current Model BIT review.

India’s investment policy was once dominated by the question of how to protect itself from foreign investors and preserve regulatory space. The current debate is more complicated. India now has to protect that policy space while ensuring that its own companies can compete internationally and receive fair treatment abroad.

The revised Model BIT could become an important tool in achieving that balance. The key will be whether the final framework can provide investors with enough legal certainty to encourage long-term capital while giving the Indian government sufficient room to pursue public policy objectives.

For now, the government’s message is that the framework remains open and that several provisions are still under review. The eventual Cabinet-approved model will show how far India is prepared to adjust its investment treaty strategy for an economy that is increasingly both a destination for global capital and a source of capital flowing overseas.