India’s New ‘Qualified MFN’ Rule for Investment Treaties
By Business Desk
India considers a ‘Qualified Most Favoured Nation’ rule in investment treaties to boost policy certainty and attract foreign capital, with key reforms to ISDS and investor protection.
India is exploring a new ‘Qualified Most Favoured Nation (MFN)’ rule for its bilateral investment treaties (BITs). This strategic move aims to enhance policy certainty for foreign investors, particularly from key trading partners like the European Union.
Key Reforms to Investment Treaties
The proposed overhaul, detailed in a draft Finance Ministry Cabinet note, introduces several significant modifications to the existing framework.
Among the key changes is the reduction of the domestic Investor-State Dispute Settlement (ISDS) window from five years to just one year.
The government also plans to double investor protection after a BIT expires, extending it to a period of 10 years.
Furthermore, the definition of ‘investment’ will be widened to encompass portfolio and other financial assets.
A notable prohibition includes banning third-party litigation funding in these disputes.
Strategic Rationale Behind the Policy Shift
This flexible approach to Bilateral Investment Treaties (BITs) is designed to provide greater policy certainty for foreign investors. It carefully avoids reverting to the broad, open-ended Most Favoured Nation (MFN) clauses that were rescinded a decade ago following numerous past disputes.
The comprehensive overhaul is primarily driven by India’s strategic need to attract substantial foreign investment. Concurrently, it aims to ensure reciprocal and fair treatment for Indian firms investing in other nations.
This renewed focus on investment frameworks comes amidst a notable decline in net foreign direct investment into India. The government’s objective is to create a more predictable and equitable environment for both inbound and outbound capital flows.