The Model BIT requires investors to attempt resolving disputes through India’s legal system for at least five years before seeking international arbitration but the India-UAE BIT has reduced this period to three years, giving investors quicker access to Investor-State Dispute Settlement (ISDS).
“While this makes the treaty more investor-friendly, it also weakens India’s ability to settle disputes domestically, increasing the likelihood of arbitration cases that could challenge India’s regulatory decisions,” said GTRI founder Ajay Srivastava.
He emphasised that reducing the local remedies exhaustion period to three years weakens India’s ability to resolve disputes internally, increasing the likelihood of cases being brought to international arbitration.
“This shift may lead to more frequent and costly arbitration proceedings, which could challenge India’s regulatory decisions on a broader spectrum of investment issues,” Srivastava said, adding that it signals a softer stance on the protection of sovereign decision-making compared to the Model BIT.
The India-UAE BITwas signed on February 13, 2024, and came into effect on August 31, 2024, with the announcement made on October 7, 2024. The previous investment agreement, signed in December 2013, expired on September 12, 2024.The Model BIT excludes portfolio investments, focusing only on direct investments that involve a tangible commitment of resources. This narrower definition helps protect India from claims related to financial instruments, such as stocks and bonds, which are often considered less integral to the host country’s economy.Unlike India’s Model BIT, which excludes portfolio investments such as stocks and bonds, the India-UAE BIT includes them as protected investments, broadening the scope of the treaty and allowing investors with passive financial holdings to use the ISDS mechanism.
“This shift increases India’s exposure to disputes over financial instruments, even those that don’t contribute significantly to economic development, moving away from the Model BIT’s focus on long-term investments,” GTRI said.
As per the think tank, overall, the India-UAE BIT signals a shift towards a more open investment environment at the expense of some regulatory sovereignty.
“While it may attract more UAE investment, it also raises the risk of higher arbitration claims against India,” he said, adding that India would soon be approached by other countries to sign BITs on similar liberal terms.