Of late, India has found a new way to liberalise and integrate with the world economy?signing Comprehensive Economic Cooperation Agreements (CECAs) at a bilateral level. Several reasons can be attributed to this?sluggish movement of negotiations at the WTO to liberalise trade, using economic diplomacy to fulfil larger political ambitions, the belief that liberalisation and integration with the global economy is good for India and, most importantly, the fear of being left behind other countries. India?s CECA journey started in 2005 with an agreement with Singapore. India signed a CECA with Korea in 2009 and is actively negotiating with Indonesia, Malaysia, Mauritius, New Zealand and Australia.

CECAs are comprehensive agreements covering not just trade liberalisation (goods and services) but also investment liberalisation and competition policy. It is interesting to note that although India has always opposed inclusion of investment and competition in the WTO, it is more than happy to have them as part of trade agreements at the bilateral level. Thus, both Indian CECAs (Singapore and Korea) contain a chapter on investment. This chapter imposes certain restrictions on the regulatory ability of the countries in treating the investors of its treaty partner. For example, India cannot adopt a regulatory policy that will expropriate the investment of a Korean or a Singaporean company, barring a few exceptions. It is expected that CECAs with other countries will also contain similar chapters on investment.

However, three factors make the Indian foreign investment liberalisation policy lack consistency due to an incoherent division of labour between the ministries of commerce and finance on this issue. First, CECAs are negotiated by the commerce ministry. The commerce ministry?s trade policy division has expertise on trade negotiations due to its long involvement with the WTO negotiations. Thus, it appears logical that commerce ministry negotiates CECAs. However, CECAs are not just about trade but also include investment. It is here that the second factor becomes important?the role of the ministry of finance in the policymaking on foreign investment liberalisation. The ministry of finance is the nodal ministry when it comes to negotiating bilateral investment treaties (BITs). BITs are international agreements signed between two countries under which each country accepts restrictions on its regulatory ability as part of its international legal obligations aimed at protecting investors of the other country. India has signed more than 70 BITs in the past 15 years. These are a key tool in any country?s foreign investment liberalisation policy because of the fundamental requirement that domestic regulations of a country should be compatible with its international treaty obligations. Thus, India?s domestic regulations on foreign investment should be compatible with its BITs. If not, then India will be in breach of international obligations. To put things in the right perspective, these BITs create the same international obligations for India on investment protection that the investment chapters of CECA do.

An inconsistency is quite apparent. The ministry of finance deals with the international treaty making process, where India undertakes international investment obligations. When the same investment obligations have to be undertaken as part of an economic agreement, then the ministry of commerce is in control. Perhaps, during the India-Singapore CECA negotiations, the commerce ministry involved the finance ministry in negotiating the investment chapter to have the desired consistency. If this is true, then why is the investment chapter in Singapore CECA at complete variance with India?s BITs and India?s model BIT, though they both perform the same role at the international level? For example, the investment chapter in the Singapore CECA does not contain the most favoured nation (MFN) principle whereas MFN is part of almost all Indian BITs.

To complicate things further, there is the third factor?the press notes (PN) on FDI are issued by the ministry of commerce. A PN is a document that provides domestic policy regulations for different sectors on FDI. Until 2009, India used to issue different PNs for different sectors. However, with effect from April 1, 2010, the ministry of commerce has started issuing one consolidated PN to serve as a one-point reference guide for all domestic regulations on foreign investment. Since these PNs should be consistent with India?s international obligations on foreign investment, the finance ministry should deal with these PNs and not the ministry of commerce. This is because the finance ministry knows, better than anybody else, what India?s international obligations on foreign investment are and how domestic regulations should be harmonised with them. Bizarrely, this is not the case. So India?s domestic regulations on foreign investment are completely oblivious of the international regulatory regime on foreign investment contained in BITs signed by India. For instance, PN of 2010 does not even mention BITs once, to say nothing of harmonising domestic regulations with international regulations on foreign investment.

The purpose here is to show that there are inconsistencies in the overall policy framework on foreign investment, arising due to the lack of exclusive control of one ministry. These inconsistencies could cost India.There are a plethora of examples from across the globe, especially from Latin America, where countries found in violation of their investment treaty obligations have been ordered to compensate foreign companies. There is a need for coherence in policymaking on foreign investment liberalisation to avoid such situations in India, where taxpayers? money finds its way to the coffers of foreign companies. The best way forward would be to let one ministry handle all the relevant aspects related to foreign investment, preferably via specialists and professionals on foreign investment inducted through lateral entry in these ministries. The latter goal will require far-reaching changes in the Indian civil services? structure and mindset. However, there is no bottleneck in achieving the former goal, barring government failure to clearly address these issues.

The author is assistant professor at NUJS, Kolkata, currently on leave to read at King?s College, London. Views are personal