India Weighs Easing Bilateral Investment Treaty Terms to Attract Foreign Capital

India is reviewing its bilateral investment treaty (BIT) template to make it more attractive to foreign investors, officials aware of the matter told the Economic Times, as the West Asia crisis sharpens focus on drawing in more foreign capital.

The government is examining whether to relax the five-year timeline under which foreign investors must first exhaust Indian legal remedies before pursuing international arbitration.

India had already shortened this requirement to three years in its 2024 investment pact with the UAE. The government is also weighing the merits of granting the most-favoured nation (MFN) forward benefit, under which any concession offered to one investment partner would automatically be extended to existing partners, the report added.

Any concessions, however, will be guided by two principles: India will not cede its sovereign policy-making space, and will not allow treaty shopping, a strategy used to route investments through third countries to gain favourable treaty benefits, as per the report. A decision will be made after broader consultations.

The report further said that while the revised template will serve as a basis for negotiations, the final treaties will vary across countries depending on strategic, economic and other considerations.

"The government is well aware of the sensitivities around such provisions. That's why safeguards have to be built into any such relaxations, if they are finally approved," an official said as quoted by ET. "But this is also the time to take the bull by the horns, because we need sustained foreign investments."

India is pursuing BITs with over two dozen nations and blocs, including the EU, the US, Russia, Saudi Arabia, Qatar and Oman. The government drew up a new BIT model in 2016 after an older template led to litigation in several cases, including the Vodafone tax arbitration. The view now is that the 2016 template itself needs revision, the report said.

India is also planning to scrap capital gains tax on investments in government securities by foreign portfolio investors. Gross FDI inflows touched a record $94.5 billion in FY26, though net inflows have remained subdued in recent years.