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August 18, 2026 | International Arbitration | Investment Law
India is reconsidering the framework governing its bilateral investment treaties at a time when governments around the world are attempting to strike an increasingly difficult balance between protecting foreign investment and preserving their own regulatory and judicial authority. Reuters reported on August 7, 2026 that the Indian government is reviewing its model bilateral investment treaty, commonly referred to as a Model BIT, with government consultations underway and possible changes expected to receive consideration at cabinet level. Although a review of treaty language may initially appear to be a technical development relevant primarily to investment lawyers, the exercise raises a much larger question about the future of investor-State dispute settlement in one of the world’s largest economies: how long should a foreign investor be required to pursue remedies through a country’s domestic legal system before being permitted to take an alleged treaty violation to international arbitration?
The controversy is particularly significant because India’s 2015 Model BIT represented a deliberate departure from the comparatively investor-friendly approach contained in many older-generation bilateral investment treaties. After facing a growing number of investment disputes, India sought to redefine the relationship between foreign investors, international tribunals and the State by narrowing certain treaty protections and placing greater emphasis on domestic remedies. The Model BIT became an important statement of that policy, even though individual treaties subsequently negotiated by India have not necessarily reproduced every provision of the model without modification. India’s Department of Economic Affairs continues to provide the Model BIT as an official government document, while UNCTAD’s treaty database shows how India’s actual investment treaty network has continued to evolve through newer agreements.
One of the most debated features of that framework concerns the requirement for investors to pursue domestic remedies before international arbitration becomes available. Under the dispute-resolution architecture of the 2015 Model BIT, the investor is generally required to pursue available domestic legal remedies for a substantial period before proceeding to treaty arbitration, subject to the actual conditions and exceptions contained in the relevant instrument. The five-year framework has attracted particular attention because five years can represent an extraordinary period in the commercial life of an investment, especially where the underlying dispute concerns a cancelled concession, revoked licence, tax measure, suspended infrastructure project, regulatory intervention or other governmental action that allegedly threatens the continuing viability of the investment.
The legal argument supporting India’s position should not be dismissed simply because foreign investors may prefer faster access to arbitration. A dispute between a foreign investor and a government does not become an international wrong merely because the investor has suffered financial loss, and domestic courts should not automatically be presumed incapable of reviewing governmental conduct fairly simply because one of the parties is foreign. A State can reasonably argue that its courts should receive a meaningful opportunity to determine whether an administrative decision was unlawful, whether a regulator exceeded its authority or whether another domestic remedy can correct the alleged wrongdoing before the matter becomes an international dispute capable of producing an arbitral award against the State. From that perspective, a local-remedies requirement can operate as an important protection for domestic judicial sovereignty rather than simply as an obstacle placed in the path of foreign investors.
The difficulty begins when the period devoted to domestic remedies becomes so substantial that the international remedy promised by the treaty risks losing much of its commercial value. An investor whose factory continues operating while a relatively minor dispute proceeds through domestic litigation is in a very different position from an investor whose operating licence has been withdrawn, concession terminated, assets frozen or major project effectively brought to a standstill. In the latter situation, requiring the investor to remain within domestic proceedings for several years can mean that the investment deteriorates significantly before an international tribunal is ever permitted to examine whether the State violated its treaty obligations. The right to arbitrate may therefore continue to exist formally while becoming considerably less effective in practice, which raises the question of whether an excessively lengthy exhaustion requirement can undermine the very protection the treaty was intended to provide.
This tension explains why the debate should not be reduced to the familiar opposition between investor rights and State sovereignty. International investment law exists because cross-border investment places capital under the territorial and regulatory authority of another sovereign State, often for extended periods and sometimes in projects involving assets that cannot realistically be relocated. A multinational corporation that has invested hundreds of millions of dollars in a power facility, telecommunications network, manufacturing plant, port, mine or transportation project cannot simply remove that investment from the country when the political or regulatory relationship deteriorates. Investment treaties can therefore provide an additional layer of legal protection by requiring the host State to comply with specified international obligations, while investor-State arbitration can provide an international forum for determining whether those obligations have actually been breached.
That does not mean international arbitration should automatically replace domestic courts whenever an investor disagrees with a government. Investor-State arbitration is not supposed to function as an international appeal mechanism against every unfavorable regulatory decision, nor does the existence of a bilateral investment treaty guarantee investors that laws, taxes, regulations or economic policies will remain unchanged throughout the life of an investment. The investor must establish the jurisdictional basis for arbitration and ultimately demonstrate that governmental conduct violated an obligation contained in the applicable treaty. India’s concern about allowing disputes to move too quickly into international arbitration is therefore understandable, particularly given the enormous financial consequences that investment claims can create for governments and taxpayers.
The more difficult issue is whether five years represents the appropriate response to that concern. Treaty design does not require governments to choose between immediate arbitration and a prolonged domestic process because numerous intermediate approaches are available. A treaty can require negotiation and consultation before arbitration, impose a shorter domestic-remedies period, create exceptions where local remedies are demonstrably ineffective or unavailable, establish different procedures for particular categories of disputes or carefully limit the substantive claims that can be submitted to international arbitration. The question facing India is consequently not whether domestic courts should matter, because they clearly do, but whether respect for those courts requires a foreign investor to remain within the domestic process for a period that may substantially alter the economic reality of the underlying investment.
India’s cautious approach to investment arbitration did not develop in isolation. The country’s treaty policy changed substantially after it became involved in several investor-State disputes, with White Industries Australia Limited v. Republic of India becoming one of the most frequently discussed cases in the evolution of Indian investment policy. The dispute arose under the Australia-India bilateral investment treaty and contributed to a wider domestic debate concerning the extent to which India’s governmental and judicial conduct could be examined through international investment arbitration. India’s subsequent policy response included adoption of the 2015 Model BIT and the termination or renegotiation of numerous older investment agreements, demonstrating that the government was not merely reacting to an individual case but reconsidering the architecture of its international investment obligations more broadly.
UNCTAD’s Investment Policy Hub documents the scale of this transition and records India’s changing network of bilateral investment treaties, including terminated older-generation agreements and more recently concluded treaties. The database shows newer Indian agreements with countries including the United Arab Emirates, Uzbekistan and Israel, demonstrating that India has not abandoned bilateral investment protection but has instead continued negotiating treaties under a more cautious framework. The India-Israel bilateral investment treaty signed in 2025 entered into force on July 4, 2026, while India’s agreements with the United Arab Emirates and Uzbekistan provide further evidence that the country’s contemporary treaty practice continues to develop beyond the original 2015 model.
This distinction between a model treaty and treaties actually negotiated with individual States is particularly important when evaluating the present review. A Model BIT establishes a government’s preferred negotiating position, but it is not automatically the final text governing every investment relationship because treaty partners negotiate their own interests and compromises. India’s more recent agreements therefore provide important evidence of how its policy has evolved in practice, and the government’s present review may ultimately bring the formal model closer to positions already emerging in bilateral negotiations. The resulting document could influence not only future arbitration claims but also the terms India is willing to offer countries seeking stronger investment protections for their nationals.
The economic context makes the review even more consequential because India is simultaneously attempting to increase foreign investment while competing with other major economies for international capital. Reuters reported that India’s net foreign direct investment stood at approximately $7.7 billion in the financial year ending March 2026, while Indian policymakers have continued examining measures intended to strengthen the country’s attractiveness to foreign investors. Investment treaties are certainly not the principal factor determining where international businesses commit capital, because market size, economic growth, infrastructure, taxation, workforce availability, political stability, regulatory predictability and access to consumers can have considerably greater influence on investment decisions. Nevertheless, legal protection forms part of the overall assessment of political and regulatory risk, particularly where investors are considering long-term projects requiring substantial capital that cannot easily be withdrawn once committed.
A treaty providing international arbitration can therefore have value even when arbitration is never used because its existence establishes a legal framework governing how certain forms of State conduct will be evaluated if the relationship deteriorates. The credibility of that protection, however, depends partly upon whether the dispute-resolution mechanism can actually be accessed within a meaningful period. An investor examining a twenty-year infrastructure project may reasonably distinguish between a treaty that permits neutral international adjudication after reasonable preliminary procedures and one that potentially requires years of domestic litigation before the international mechanism becomes available. India must consequently consider not only how treaty provisions protect the government from unnecessary claims but also how those provisions will be interpreted by investors assessing the legal environment before committing capital.
At the same time, arguments that India should simply eliminate its domestic-remedies requirement would overlook legitimate concerns about the expansion of investor-State arbitration. Governments internationally have spent years reassessing older bilateral investment treaties because broadly worded protections have sometimes generated disputes concerning taxation, environmental measures, energy policy, public health regulation, licensing decisions and other areas closely connected with sovereign governmental authority. The international debate has consequently shifted away from the assumption that stronger investor protection is always preferable and toward a more complicated discussion about how treaty protection can coexist with a State’s legitimate right to regulate in the public interest.
India’s review therefore belongs to a much larger reconsideration of investor-State dispute settlement taking place internationally. UNCITRAL’s Working Group III has been examining reforms addressing concerns about consistency, cost, duration, arbitrator independence and the institutional structure of ISDS, while UNCTAD has repeatedly documented the movement toward newer-generation investment agreements containing more detailed provisions concerning regulatory authority and sustainable development. The global direction is not simply toward eliminating investor protection or expanding it without limitation, but toward determining how international commitments can remain credible without transforming investment treaties into insurance against ordinary commercial risk or legitimate governmental regulation.
The eventual language adopted by India will therefore matter considerably more than the announcement that a review is underway. A substantial reduction in the domestic-remedies period could indicate that India wants to provide foreign investors with more practical access to international arbitration, while retention of the existing framework would demonstrate that the government continues to place significant importance on domestic courts having the first opportunity to resolve investment disputes. India could also pursue a middle position by retaining the principle of local remedies while shortening the applicable period, expanding exceptions or differentiating among categories of disputes, which might preserve the institutional role of Indian courts without allowing the international remedy to become commercially ineffective.
The deeper question raised by the review concerns who should receive the first meaningful opportunity to determine whether a foreign investor has been wronged when the alleged wrong was committed by a sovereign government. Giving international tribunals immediate access to every dispute risks diminishing the role of national courts and encouraging investors to internationalize disagreements that domestic institutions may be perfectly capable of resolving, while requiring investors to remain within those institutions for too long risks weakening the independent international protection that motivated the treaty mechanism in the first place. Neither position can be resolved simply by invoking sovereignty or investor confidence because an effective investment regime requires both a government capable of regulating within its territory and investors capable of relying upon the international commitments that government has voluntarily undertaken.
India’s current review is therefore important for reasons extending well beyond whether a particular provision continues to say five years. The eventual reforms could reveal how one of the world’s largest economies now understands the relationship between domestic judicial authority, foreign investment protection and international arbitration at a moment when the global ISDS system itself is undergoing substantial reconsideration. If India succeeds in finding a structure that gives domestic courts a genuine opportunity to address disputes without making international arbitration practically inaccessible, its approach could provide an important example of how States can recalibrate investment treaties without abandoning either sovereign regulatory authority or meaningful international legal protection.
The real issue is ultimately not whether foreign investors should be allowed to bypass Indian courts or whether India should be able to prevent investors from reaching international arbitration, because framing the debate in those terms forces a choice that modern treaty design does not necessarily require. The more consequential question is how much domestic process is enough before an international remedy becomes necessary, and at what point a procedural requirement intended to protect national institutions begins to undermine the international obligation it was supposed to regulate. India’s review may provide an important answer to that question, and foreign investors, governments and arbitration practitioners will be watching closely to see where the country ultimately draws the line.
Sources and Further Reading
The principal current development was reported by Reuters on August 7, 2026, including the Indian government’s review of its bilateral investment treaty model and the wider policy discussion concerning investment protection and foreign capital.
Reuters — India reviewing bilateral investment treaty model
India’s Department of Economic Affairs provides the official government materials concerning the country’s 2015 Model Bilateral Investment Treaty and should be treated as the primary source when examining what the model itself provides.
Government of India — India’s Model BIT 2015
UNCTAD’s Investment Policy Hub provides India’s treaty history, treaty texts and current status information for its international investment agreements, making it particularly useful for distinguishing India’s 2015 model from the bilateral agreements actually concluded with individual States.
UNCTAD — India’s International Investment Agreements
UNCTAD separately records the India-Israel BIT signed in 2025 and its entry into force on July 4, 2026, providing a recent example of India’s continuing investment treaty practice.
UNCTAD — India-Israel Bilateral Investment Treaty
UNCITRAL provides the primary institutional record of the continuing international process examining reform of investor-State dispute settlement through Working Group III, including work concerning procedural and structural reform of the existing system.
UNCITRAL — Investor-State Dispute Settlement Reform
