Bilateral investment treaty

Indian Economy glossary

Also called: BIT · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT

Meaning

A bilateral investment treaty (BIT) is an agreement between two countries to protect investments made by each other's investors. It usually promises fair treatment and payment of compensation if an investment is taken over. It often lets investors take disputes to international arbitration, which is decided by an outside panel instead of the host country's courts. BITs aim to build investor confidence, but they can limit what a government is free to regulate.

Example

After losing White Industries v India (2011), the first award against India, and facing the Vodafone and Cairn arbitrations over retrospective taxes, India ended most of its old BITs in 2016–17. Its Model BIT 2015 is stricter:

  • it has no MFN clause (MFN is a promise to match the best treatment given to any other country);
  • it keeps taxation out;
  • investors must use Indian remedies for 5 years before going to arbitration.

India has since signed new BITs with the UAE (2024), Uzbekistan (2024) and Israel (2025).

Don't confuse with

  • Free trade agreement (FTA): an FTA mainly removes tariffs on trade in goods. A BIT only protects investments already made.

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