3 days ago
India Weighs Qualified MFN Rules in Bilateral Investment Treaty Overhaul
India is considering new rules for treaties that protect investments between countries.
It does not plan to restore the old, unrestricted most-favoured-nation rule.
Instead, it may use a limited version that gives investors more certainty but prevents broad legal claims.
The proposal would let investors take some disputes to international arbitration after one year in India’s courts instead of five.
It would also protect some portfolio investments, such as certain shares.
Third parties would not be allowed to fund investment treaty lawsuits.
Supporters say the changes could attract foreign money and help Indian companies receive fair treatment abroad.
Critics warn that faster access to international arbitration could be risky if India’s domestic legal institutions are not strengthened.
The government is trying to make investment rules more competitive without returning to broad protections under its earlier treaty approach.
India’s proposed BIT overhaul would retain safeguards against open-ended MFN and full FET claims.
A qualified MFN clause could provide limited investor protections without importing provisions from third-country treaties.
The draft proposes cutting the domestic ISDS period from five years to one year.
Portfolio investments and other financial assets could be included within treaty protections, while third-party litigation funding would be banned.
Net FDI reportedly fell from nearly $40 billion annually in FY20-FY22 to about $7.65 billion in FY26 preliminary data.
- Who
- The Indian government, foreign investors, Indian companies, and legal and business experts including Amit Agarwal and Sudhir Kapadia.
- What
- India is considering a broad overhaul of its bilateral investment treaties, including a qualified MFN rule and changes to dispute settlement and investment definitions.
- Where
- The proposed rules would apply to India’s bilateral investment treaties and affect investments in India and Indian investments overseas.
- When
- The proposals are in a draft Cabinet note circulated for deliberations; the article does not provide a specific date.
- Why
- The changes aim to attract foreign investment, improve policy certainty, and help Indian companies seek comparable treatment in major economies such as the United States and European Union.
Supporters of a Qualified MFN Framework
Caution About Broader Treaty Access
Investor protection
Supporters of a Qualified MFN Framework
A carefully limited MFN clause could improve policy certainty and address concerns from major trading partners without importing every favorable provision from third-country treaties.
Caution About Broader Treaty Access
Unrestricted MFN treatment could create broad claims based on other treaties, which India has sought to avoid since its 2015 model BIT.
Shorter domestic process
Supporters of a Qualified MFN Framework
Reducing the domestic dispute period to one year could speed commercial dispute resolution and allow unresolved cases to move to international arbitration sooner.
Caution About Broader Treaty Access
A shorter period could place greater pressure on India’s courts and simply enable earlier arbitration unless domestic dispute-resolution institutions are strengthened.
International competitiveness
Supporters of a Qualified MFN Framework
Broader asset coverage and reciprocal protections could attract foreign investors and help Indian companies obtain similar treatment in the United States and European Union.
Caution About Broader Treaty Access
Expanding treaty protections, including to portfolio investments, must be carefully worded so that India does not reopen risks associated with legacy disputes.
Key facts
- MFN approach
- The proposal would not restore unrestricted most-favoured-nation treatment, but could allow a qualified version with safeguards.
- Domestic dispute period
- The draft proposes reducing the domestic Investor-State Dispute Settlement period from five years to one year.
- Post-treaty protection
- Investor protection after a BIT expires could be doubled from five years to 10 years.
- Covered assets
- Portfolio investments and other financial assets could be added to the definition of protected investment.
- Litigation funding
- Third-party funding of investment treaty litigation would be banned under the proposal.
- FDI trend
- Net FDI reportedly declined from nearly $40 billion annually on average in FY20-FY22 to roughly $7.65 billion in FY26 preliminary data.
- Current negotiations
- India is negotiating a dozen bilateral investment treaties.
Quotes
Sudhir Kapadia
Senior Adviser at KPMG Assurance and Consulting Services
“A one-year period could be a good benchmark. If a dispute is not resolved within one year through the domestic legal process, the parties could move towards international arbitration. The objective would not necessarily be to replace the courts, but rather to expedite commercial dispute resolution and encourage the use of alternative mechanisms where appropriate.”
financialexpress.com
“India has to cautiously move beyond MFN. The judgment ought to be based on a quid-pro-quo treatment which India expects for homegrown MNCs working in the USA and EU. Imagine a Sun Pharma investment in the USA treated with sub-par standards below Nigeria, as the USA has a better treaty with Nigeria. MFN is a sword that cuts both ways.”
financialexpress.com
Sources
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