A Bilateral Investment Treaty (BIT) is a legally binding international agreement between two countries that establishes the terms and conditions for private foreign investments made by nationals and companies of one country in the territory of the other. The primary objective of a BIT is to promote and safeguard Foreign Direct Investment (FDI) by creating a stable and predictable legal framework for cross-border investments. The concept evolved from earlier Friendship, Commerce, and Navigation Treaties (FCNs). India signed its first BIT with the United Kingdom in 1994 and subsequently expanded its network to over 80 countries.
BITs work by guaranteeing core protections to foreign investors, such as National Treatment (treating foreign investors no less favorably than domestic investors) and Most-Favoured-Nation (MFN) Treatment (treating them no less favorably than investors from any third country). They also include provisions for Fair and Equitable Treatment (FET) and protection against expropriation (government seizure of property) unless it is for a public purpose, non-discriminatory, and followed by prompt, adequate, and effective compensation. A crucial mechanism is the Investor-State Dispute Settlement (ISDS), which allows a foreign investor to directly submit a claim against the host state to international arbitration, often bypassing local courts.
India's BIT framework underwent a significant change following adverse arbitral awards in the mid-2010s, leading to the adoption of the 2016 Model BIT. This new model, which replaced the earlier 1993 Model BIT, was designed to be more restrictive and pro-state, aiming to secure India's sovereign right to regulate. Following its adoption, India terminated around 75 of its existing BITs. The 2016 Model BIT notably shifted the definition of 'investment' from a broad 'asset-based' approach to a narrower 'enterprise-based' one. However, in 2025, India announced plans to revise the 2016 Model BIT again to make it "more investor-friendly," with a new text currently under consideration.