India's framework for foreign direct investment (FDI) has undergone a significant transformation, with its network of bilateral investment treaties (BITs) contracting sharply in recent years. According to economist Surjit Bhalla, the number of investment treaties in force plummeted from 73 in 2015 to a mere eight by 2021. This drastic reduction, Bhalla argues, is largely attributable to the introduction of India's 2016 Model BIT, which he believes has weakened the nation's appeal for fresh foreign capital.
The Impact of the 2016 Model BIT
The 2016 Model BIT, intended to streamline India's investment protection regime, has instead become a point of contention for its restrictive provisions. Bhalla, a former advisor to Prime Minister Narendra Modi, has publicly called for a rethink of the framework, highlighting its potential to constrain foreign investment flows.
Five-Year Litigation Requirement Under Scrutiny
A central criticism leveled against the 2016 Model BIT is its contentious requirement for foreign investors to pursue domestic legal remedies for five years before they can initiate international arbitration. Bhalla sharply contrasts this with international norms, where consultation periods typically range from three to six months before arbitration proceedings commence.
"Before going to international arbitration, a foreign investor had to litigate in Indian courts for five years," Bhalla stated, questioning the efficacy of such a prolonged requirement in a judicial system where judgments can take considerable time. He argues this provision creates significant uncertainty for investors rather than improving dispute resolution.
While subsequent treaties, such as those with the UAE (2024) and Israel (2025), have reduced this period to three years, Bhalla maintains that it remains substantially longer than the global standard, potentially deterring investors seeking quicker resolution mechanisms.
Contraction of India's Treaty Network
The introduction of the 2016 Model BIT directly preceded a dramatic decline in India's investment treaty network. Data cited by Bhalla shows the number of treaties in force falling from 73 in 2015 to 29 in 2017, then to 16 in 2019, and finally stabilizing at eight by 2021. This contraction, he asserts, positions India as having one of the most obstructionist investment treaties globally.
Gross FDI vs. Net Investment: A Deeper Look
Bhalla emphasizes that the decline in treaties must be examined alongside India's broader foreign investment figures, moving beyond headline gross FDI numbers. For instance, while gross FDI inflows reached $94.5 billion in 2025-26, significant repatriations and disinvestments by foreign investors ($53.6 billion) and outward investments by Indian companies ($33.3 billion) resulted in a net FDI of only $7.65 billion.
He further argues that reinvested earnings by foreign companies, totaling $25.6 billion, should not be automatically counted as fresh commitments of foreign capital. The true cost, Bhalla suggests, is not what has been lost but what India has been forgoing in potential investment year after year.
As India continues to seek greater foreign investment and negotiate new trade agreements, the debate over the 2016 Model BIT underscores a critical policy challenge. Bhalla's central argument calls for policymakers to focus not just on existing capital inflows but on creating a more predictable and attractive treaty framework to unlock future investment potential.