India’s new Bilateral Investment Treaty (BIT) Model would introduce a specific framework on treatment of foreign portfolio investors (FPIs), which was excluded in erstwhile BITs, Moneycontrol has learnt. The new Model for BIT is currently in the works – aimed at improving ease of doing business for foreign investors — and is likely to be introduced in the coming months.
A BIT is a pact between two countries to promote and protect investments by providing assurances such as non-discrimination, protection against expropriation (seizure of assets by authorities), and access to arbitration.
Finance Minister Nirmala Sitharaman in her Budget 2025 speech had said that “to encourage sustained foreign investment and in the spirit of ‘first develop India’, the current model BIT will be revamped and made more investor-friendly.” India presently follows a 2015 Model of BIT – which explicitly excludes portfolio investments from its ambit.
Inclusion of portfolio investments in the BITs have been a long demand of the industry – as it provides greater certainty to their investments, and boost their confidence.
Although, the new BIT Model has not yet been approved by the finance ministry, portfolio investments have been included in its ambit in two recent agreements – with Israel and UAE. According to government officials, the attempt is now to “formalise” this, so that other BITs – currently being negotiated – adopt the same approach.
The aim is to provide certainty to portfolio investors with regards to “treatment of their investments” in India, which would likely lead their enhanced participation, sources say.
Treatment, according to BIT, means ensuring that India doesn’t apply measures that accord less favourable treatment to foreign investors, than that it accords to its own with respect to the “management, conduct, operation, sale or other disposition of investments in its territory”. It simply means, India shall not discriminate between its own domestic investors and foreign investors, ensuring a level playing field for everyone.
The recently signed BIT with Israel, and the one with UAE, included protection for portfolio investments. According to Article 8 of the BIT with Israel, both countries shall allow “all funds” of investors “related to an investment in the territory” to be “freely transferred” on a non-
discriminatory basis. The funds include profits, dividends, capital gains, sale proceeds, interest, royalty payments and technical fees et cetera. This essentially means India and Israel have agreed not to freeze a foreign investor’s money. It guarantees an exit door with no roadblocks.
“Portfolio investments differ from long-term direct investments and can be more sensitive to regulatory and tax changes. It will therefore be important to define covered portfolio assets and what constitutes a treaty breach precisely and sharply,” Rajnish Gupta, Partner — Tax and Economic Policy Group, EY India. “These treaty changes must go hand in hand with faster, more efficient domestic dispute resolution and regulatory processes.”
Faster access to global arbitration
Meanwhile, the new BITs would also encourage faster access to global arbitration, which at the moment is possible only after domestic legal remedies are pursued for five years.
The Israel and UAE pacts allow investors to seek international arbitration after exhausting domestic remedies for three years. However, the aim is to reduce this period to two years in the new BITs being negotiated.
Experts note that shortening the period for exhausting local legal remedies, which can often be time-consuming, is a practical and pragmatic move.
“By bringing FPIs within the treaty framework, India acknowledges the growing role of capital markets in driving liquidity and economic stability, while faster arbitration mechanisms aim to provide investors with more timely and may be predictable dispute resolution – both features which are expected to showcase improved investment sentiment and cross-border capital flows,” said Krishan Arora, Partner, Grant Thornton Bharat.
