India To Revamp Investment Treaty Model As FDI Debate Gets Sharper

India is changing its investment treaty rules to pull in foreign capital while keeping control over tax, security, welfare and public policy.

Key Highlights
 

• India will revise its Model Bilateral Investment Treaty after the Budget 2025-26 announcement.
   
• FY 2024-25 FDI inflow stood at USD 81.04 billion, up 14%.
   
• India earlier terminated 77 older BITs after adopting the 2015 model.
   
• Experts say India needs investor protection without weakening its right to regulate.

Why Is India Changing Its Investment Treaty Model?

India will revamp its Model Bilateral Investment Treaty to make it more investor-friendly, Finance Minister Nirmala Sitharaman said in the Union Budget 2025-26 presented on 1 February 2025. The change involves India’s foreign investment policy, global investors, Indian businesses and future treaty partners.

The move comes when India’s FDI inflow touched USD 81.04 billion in FY 2024-25, according to the Ministry of Commerce and Industry’s PIB release dated 27 May 2025. In the short term, it can improve investor comfort. In the long term, weak drafting may expose India to more legal claims from foreign investors.

What Do India’s FDI Numbers Show?

The latest FDI data shows why the treaty rewrite has gained policy weight. India needs capital for factories, services, infrastructure and technology-led hiring.

Economic Times reported on 27 May 2025 that India’s FY25 FDI inflow reached USD 81.04 billion. Times of India also reported that gross FDI rose 13.6% to around USD 81 billion in FY25.

How Will This Affect Indian Workers And Businesses?

For Indian workers, a better treaty can support more factories, service jobs, supplier orders and state-level investment projects. Manufacturing FDI rose 18% in FY 2024-25, which makes the treaty debate directly linked to production-led employment.

For Indian businesses, more foreign capital can mean bigger contracts, vendor partnerships and stronger supply chains. The downside is also important. If dispute rules become too wide, India may face pressure when changing tax, health, environment or security rules.

What Happened Before This Treaty Reset?

India adopted the 2015 Model BIT after several investor-state arbitration disputes. Volterra Fietta’s 20 June 2025 analysis said the model required foreign investors to pursue local remedies for 5 years before international arbitration.

The older treaty network then shrank sharply. PRS, citing the Standing Committee on External Affairs report submitted on 10 September 2021, recorded the following treaty history.

This past record explains why India now wants a softer but guarded model. The India-UAE BIT signed in 2024 already showed a shift by keeping ISDS with a shorter 3-year local-remedy period.

What Do Experts Say India Should Fix?

Chief Economic Adviser V Anantha Nageswaran said on 4 March 2025 that India needs both investor protection and sovereignty, according to Volterra Fietta. LoansJagat reported on 27 May 2026 that Surjit Bhalla called India’s FDI policy restrictive.

Business Today reported on 28 May 2026 that Arvind Panagariya rejected panic over FDI and said gross FDI remained robust. The fix is tighter language, faster dispute routes and firm carve-outs for tax, security, welfare and environment.

Conclusion

India’s BIT revamp is a legal reset with direct economic impact. The final model must attract capital without weakening India’s right to govern.

FAQs

What Is India Changing?
India is revising its Model BIT to make foreign investment rules more investor-friendly.

Why Is This Important Now?
India received USD 81.04 billion FDI in FY 2024-25 and wants stable long-term capital.

What Was The Previous Update?
India’s 2015 model gave stronger policy protection to the government and led to many treaty exits.

Will the India-EU trade deal help Indian companies and foreign investors?

It can help Indian exporters get wider access to Europe. Still, carbon tax rules, data laws and investor protection talks may slow the final deal.

Which country sends the most foreign investment to India?

Singapore currently sends the largest FDI into India. In FY 2024-25, it held a 30% share, ahead of Mauritius and the US overall.