New bilateral investment model: 2-year local remedy window, no most favoured nation clause

📌 Summary:

• The Centre is remodelling its Bilateral Investment Treaties (BITs) on three key principles: a minimum two-year window for local remedies before international arbitration; no most-favoured-nation (MFN) clause; and exclusion of tax provisions
• A one-year cooling window for local remedies is being considered for some countries in ongoing negotiations; the aim is to tailor BITs country-by-country
• Rationale: protect national sovereignty and Parliament's powers; route disputes through dedicated Indian commercial courts before international arbitration, which the Centre says lacks fair representation and can yield discretionary outcomes
• The current model dates to 2015 (adopted Jan 2016) requiring exhaustion of domestic remedies; revamp was announced in Budget 2025-26; changes were originally spurred by arbitration cases like Vodafone and Cairn; FM Nirmala Sitharaman has said BITs should be negotiated standalone from FTAs

🎯 UPSC Relevance: GS3 — investment models and foreign investment; GS2 — sovereignty vs investor-state dispute settlement; ease of attracting sustained FDI

📝 Prelims Facts:

• BIT = Bilateral Investment Treaty; current model approved Dec 2015, adopted Jan 2016
• Key proposed features: 2-year local-remedy window, no MFN/ratcheting clause, taxation excluded
• Past triggers: Vodafone and Cairn tax-dispute arbitrations against India

🔑 Key Term: Most-Favoured-Nation (MFN) clause — a treaty provision requiring a country to extend to one treaty partner any better treatment it gives another; India proposes dropping it from new BITs