Balancing the state's right to regulate with investor protection is central to any investment treaty regime. Analyse this tension in the Indian context.

An investment treaty must simultaneously assure foreign capital of legal certainty and preserve the host state's sovereign space to legislate on health, environment and taxation. India's Model Bilateral Investment Treaty, 2015, drafted after a wave of investor claims, resolved this tension decisively in favour of regulatory autonomy — a choice now being revisited.

The regulatory-sovereignty tilt

• Enterprise-based definition of investment, replacing the broad asset-based one, narrows the class of protected claims [1].
• Refined ISDS: investors must exhaust local remedies before commencing international arbitration, and tribunals may award monetary compensation alone — no injunctive relief against state measures [1].
• National treatment and expropriation protection through due process, but without the expansive fair-and-equitable-treatment and MFN readings tribunals had drawn from the 1993 text [1].
• Parliament's Standing Committee traced India's exposure to ambiguous drafting in older treaties, urging language that forecloses expansive interpretation [2].

The investor-protection cost

• India issued termination notices to 77 countries, leaving only a handful of older treaties operative — withdrawing protection assurances from many partners at once [2].
• Few partners accepted the new template; treaty-making slowed to a trickle, with the India–UAE BIT (2024) among the limited successes [3].
• The Committee itself found scope for fine-tuning the dispute-settlement provisions and recommended continuous review against international best practice [2].

The procedural dimension

• Treaty-making remains an executive function, with Parliament's role under Article 253 confined to implementing legislation — leaving little pre-signature scrutiny of how the balance is struck.

The tension is thus not binary: excessive investor protection invites arbitral second-guessing of legitimate policy, while excessive state discretion deters the very capital the regime seeks. The Budget 2025-26 commitment to revamp the model BIT in the spirit of "first develop India" signals a recalibration rather than reversal [4]. A calibrated text — clear definitions, credible dispute resolution and an explicit right to regulate — coupled with wider consultation before adoption, would serve both investor confidence and constitutional sovereignty.