Ahead of Prime Minister Narendra Modi’s US visit next month, the government is finalising the bilateral investment treaty (BIT) that would replace the existing bilateral investment protection agreement and would protect the country against arbitration and international cases.
The revised treaty seeks to exclude taxation measures, commercial contracts between domestic and foreign companies from the sphere of arbitration but is likely to have many changes to make it more investor-friendly. “The draft BIT has been cleared by the committee of secretaries. We are waiting for approval from the Union Cabinet, which should come in soon,” said a senior government official.
India has been negotiating with the United States on such a pact and approval from the Union Cabinet could pave the way for signing of the agreement between the two countries.
The finance ministry had issued a draft text of the BIT in April this year for public comments.
Sources said that since then, the draft treaty has seen several changes based on feedback and consultations but added that taxation measures as well as commercial contract or agreement between domestic and foreign investor for an investment would continue to be excluded from the treaty.
The move comes after a number of tax disputes such as those relating to Vodafone and Nokia where the country is involved for tax arbitration.
In March this year, Cairn Energy had filed a notice of dispute against India’s income tax department on a $1.6 billion tax claim while a number of global telecom firms have also slapped notices on the government for breach of bilateral investment protection pacts after their 2G licences were taken away following a Supreme Court ruling.
However, to make it more investor-friendly, a number of Sections in the treaty have been revised, including some tweaks to a proposal to exclude the issuance of compulsory licences for intellectual property rights out of the sphere of arbitration.
At present, India has signed 83 bilateral trade and promotion agreements, of which 72 are in force. Sources said that the government would re-negotiate all these treaties once the BIT is finalised.