Piyush Goyal, Minister of Commerce and Industry
India has reduced the period for foreign investors to seek international arbitration from five years to three years as part of the recently signed investment treaty with the United Arab Emirates (UAE), a departure from its Bilateral InvestmentTreaty (BIT) model.
Under the Investor-State Dispute Settlement (ISDS) mechanism, if the Indian judicial system is unable to resolve the dispute within this short period, investors can resort to international arbitration.
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The investment agreement, which was signed on February 13 in Abu Dhabi, entered into force on August 31, replacing the previous agreement.
India’s new treaty includes stocks and bonds as protected investments, unlike the BIT model, which provides protection for foreign direct investment (FDI) and excludes portfolio investments such as stocks and bonds.
A BIT between India and the UAE will improve investor confidence, provide a predictable and stable tax system, and help investors get help if they feel they did not get a fair deal, Commerce and Industry Minister Piyush Goyal said on Monday.
“In the various issues we discussed today (Monday), some of our Indian companies believe that there are some issues with the UAE and similarly some UAE companies may have with India. The BIT will help provide a framework, where both sides can resolve these issues,” Goyal told reporters after co-chairing the 12th meeting of the India-UAE joint investment forum, along with Sheikh Hamed bin Zayed Al Nahyan, managing director of Abu Dubai Investment Authority (ADIA).
However, experts believe that the delay could weaken India’s ability to resolve disputes internally and increase the chances of international arbitration.
According to the Delhi-based think tank Global Trade Research Initiative (GTRI), while the BIT may attract more UAE investment, it also increases the risk of higher arbitration claims against India. Besides, India will soon be asked by other countries to sign BITs on the same liberal terms as it negotiates BITs with countries like the United Kingdom (UK) and trade organizations like the European Union.
GTRI said the inclusion of stocks and bonds as protected investments widens the scope of the agreement, allowing investors with passive capital to access the ISDS mechanism. “This shift increases India’s exposure to disputes over financial instruments, even those that do not play a major role in economic development, away from the Model BIT’s focus on long-term investment,” the report said.
Making an official announcement on the deal, the Finance Ministry on Monday said the India-UAE BIT was expected to boost investor confidence by ensuring a minimum standard of treatment and non-discrimination while providing an ‘independent forum’ for settlement of disputes through arbitration.
“However, while providing investors and investment protection, the balance is maintained with respect to the right of the state to regulate and thereby provide sufficient policy space,” he said.
With 3 percent of total FDI inflows, the UAE is India’s seventh largest source of foreign investment, contributing nearly $19 billion between April 2000 and June 2024. India also accounted for 5 percent of its total overseas investment in the UAE. , reaching $15.26 billion from April 2000 to August 2024.
BITs enable mutual promotion and investment protection–protection for foreign investors in India and Indian investors abroad. Such agreements increase investor confidence and aim to encourage foreign investment.
First published: October 08 2024 | 12:08 AM IST
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