On August 31, 2024, the India-UAE Bilateral Investment Treaty (BIT) officially came to life, marking a significant shift in how investments between the two nations will be handled. Signed on February 13, 2024, during a high-profile visit by Indian Prime Minister Narendra Modi to Abu Dhabi, this treaty promises added security for investors from both countries, offering continuity following the expiration of the previous Bilateral Investment Promotion and Protection Agreement (BIPPA) from 2013, which ended on September 12, 2024.
The newly enforced treaty introduces several key provisions aimed at improving the investment climate between India and the UAE. Notably, it reduces the mandatory period for investors to exhaust domestic remedies before they can initiate international arbitration from five years to just three years. This change is seen as making the treaty more appealing to UAE investors, allowing them quicker recourse to the Investor-State Dispute Settlement (ISDS) mechanism compared to the older version.
Union Finance Minister Nirmala Sitharaman emphasized the treaty's role in enhancing investor confidence, stating, "The India-UAE BIT 2024 is expected to increase the comfort level and boost the confidence of investors by assuring minimum standards of treatment and non-discrimination, along with providing for independent arbitration."
The finance ministry's assertions reflect the treaty's intent to signal to UAE investors - who have already invested about USD 19 billion cumulatively between April 2000 and June 2024 - and potential investors from other nations, the reliability of India as a destination for their funds.
Integral to this treaty is the clear definition of investment, which now includes portfolio investments such as stocks and bonds—assets previously excluded under India's model investment treaties. The broadened definition means investors can appeal to the ISDS mechanism for protection over various financial instruments, even those investments not heavily linked to tangible economic development. This expansion increases India’s exposure to disputes, forecasted to arise from these financial tools.
Many experts, including analysts from the Global Trade Research Initiative (GTRI), have pointed out potential drawbacks to this newfound investor-friendliness. Reports suggest the easing of the local remedies exhaustion period could encourage more frequent arbitration cases, which may challenge India's regulatory decisions, the very safeguard the government was eager to preserve.
“While this makes the treaty more investor-friendly, it also weakens India’s ability to settle disputes domestically, increasing the likelihood of arbitration cases challenging regulatory decisions,” remarked Ajay Srivastava, Founder of GTRI. He explained how these changes could lead to increased arbitration costs and disputes over regulatory issues.
Further, as part of the diplomatic and economic agreements, India and the UAE have committed to enhancing their economic ties through various initiatives, including food processing investments, with the UAE pledging USD 2 billion for food parks. This project aims to create job opportunities, secure food supplies, and bolster agricultural income within India, indicating the multifaceted nature of the treaty's impact.
During the recent 12th Meeting of the India-UAE High-Level Joint Task Force on Investments held in Mumbai, both nations took stock of their growing relationship. It was co-chaired by Indian Commerce Minister Piyush Goyal and Sheikh Hamed bin Zayed Al Nahyan, Managing Director of Abu Dhabi Investment Authority (ADIA). Goyal noted the momentum gained from the Comprehensive Economic Partnership Agreement (CEPA) established earlier, emphasizing how the BIT complements their existing agreements.
The CEPA has significantly boosted bilateral trade, with non-oil trade rising to USD 28.2 billion just within the first half of 2024, reflecting the growing interdependence of the two economies. Along with lowering tariffs on various products, the treaty enhances cooperation across key sectors such as energy, artificial intelligence, and logistics.
Both countries are actively seeking to cultivate a vibrant marketplace for cooperation, with efforts underway to enable payment system integration. The establishment of the JAYWAN card scheme aims to provide UAE with sovereignty over digital payments, reflecting deep engagement at multiple levels. India is also set to open its office of Invest India in Dubai, aiming to serve as the first point of contact for potential UAE investors.
Notably, there's notable apprehension around the provisions allowing for arbitration claims against India, particularly as the government has maintained its right to regulate. This balance is highlighted by clauses stating no investor claims can be made where investments are linked with corruption or fraud. Yet, experts warn of the delicate balance the treaty strikes between protecting investors and preserving India’s regulatory autonomy.
Interestingly, India remains hopeful about the BIT contributing to its goal of attracting more Foreign Direct Investments (FDIs). The UAE has been identified as India’s seventh-largest investor, making up about 3% of total FDIs, indicating the strategic importance of this legal framework moving forward.
Overall, the ratification of the India-UAE BIT reflects both countries' commitment to strengthening their economic bonds and addressing the demands of modern investment dynamics. The full impact of these changes will likely continue to evolve as both nations engage more deeply on this front.
