Towards the end of 1992, when Finance Minister Manmohan Singh, having announced the 1991 economic reforms and allowing portfolio investment by foreign institutional investors, was in the UK, he was asked about the protection for foreign investments in India. India’s treatment of foreign investors under Section 29 of the FERA Act before the dawn of the 1991 reforms gave rise to these genuine concerns. On his return to India, Singh asked his officials at the department of economic affairs of the ministry of finance to start working on an international foreign investment treaty that would provide confidence to foreign investors willing to invest in India.
This became critical for India to demonstrate to the world its seriousness about the economic reforms process that started in 1991. In his 1993 budget speech to the Indian Parliament, Finance Minister Manmohan Singh signalled the role of BITs as an important means of attracting foreign investment in India. Singh said that many countries, including the UK, Germany, and the United States, had expressed interest in signing BITs (Bilateral Investment Treaties) with India and that the Indian government indicated a willingness to enter into bilateral negotiations on this issue. In his next budget speech in 1994, Singh, while talking about liberalization of foreign investment, informed the Indian parliament that India is negotiating BITs with major capital-exporting countries.
India soon developed a model BIT in 1993, modelled on the Organisation for Economic Co-operation and Development’s (OECD) Draft Convention for Protection of Foreign Property of 1967. The 1967 OECD Draft Convention provided foreign investors fair and equitable protection; just compensation, that is, compensation representing the genuine value of the property affected to be paid without undue delay, for expropriation; and recourse to international arbitration for settlement of disputes between foreign investors and host states. Adopting a Model BIT based on the OECD Model showed India’s willingness to accept those very international legal principles for protection of foreign investment that it had opposed in the 1960s and 1970s. It showed a voluntary transition from the formalist-dualism of the previous phase as B.S. Chimni calls it. A massive change of heart took place because India was now willing to subject her regulation of foreign investment to the scrutiny of international legal principles that it had opposed all along at various multilateral forums.
The third world approaches to international law scholars in India who critique India embracing the neoliberal economic order do not account for the massive economic changes that took place in India during this period, which made India shift and adopt those international legal principles that it had not fully embraced in the 1960s and 1970s. There was a strong economic rationale for India to move towards adoption of BITs (which in TWAIL terminology would be a tool to pursue the neocolonial and imperial project).
India adopted a model BIT in an eagerness and enthusiasm to signal readiness to the outside world to offer extensive treaty-based protection, both substantially and procedurally, to foreign investment, to attract more capital. India, at that point of time, was quite concerned about high foreign investment flows into China and thus wanted to attract more foreign investment. This concern over high foreign investment inflows to China over India is corroborated by the statement of Prime Minister Rajiv Gandhi in 1988, even before the 1991 economic reforms took place. Rajiv Gandhi, on foreign investment inflows to China and India, had said: ‘foreign investment in socialist China is about Rs 2000 crore per year. Foreign investment in India is only Rs 100 crore per year’. Rajiv Gandhi then went on to emphasize that India could absorb a larger flow of foreign investment, which would be to India’s advantage.
On 14 March 1994 India signed its first BIT (an agreement to promote and protect foreign investment) with its erstwhile colonial ruler, the UK. In order to signal its commitment to attract and protect foreign investment, on 6 January 1994, couple of months before signing the BIT with the UK, India formally joined the convention establishing the Multilateral Investment Guarantee Assurance (MIGA), after signing it in April 1992.
Multilateral Investment Guarantee Assurance is a member of the World Bank Group and the objective of MIGA is to boost foreign investment flows for productive purposes especially to developing countries. After signing the BIT with the UK, from 1994 till the end of 2000, India went on a BIT-signing spree. India signed as many as 40 BITs in six years, an average of 6-7 BITs each year. India’s treaty partners included developed countries like Germany, Italy, Denmark, Netherlands, France, Switzerland, Australia, Austria, Spain, and Sweden. During this phase, India also signed BITs with many developing countries from Asia, Africa, and Latin America such as Malaysia, Turkmenistan, Tajikistan, Korea, Israel, Sri Lanka, Thailand, Oman, Indonesia, Egypt, Zimbabwe, and Argentina.
From 2001 onwards till the end of 2010, India signed BITs with another 39 countries. Thus, although the pace with which India signed BITs from 2001 to 2010 slowed down in comparison to the immediately preceding period of 1994 to 2000, India still signed an average of four BITs per year during this 10-year period. The Bilateral Investment Treaties signed in this phase largely included developing countries. Some of the countries with whom India signed a BIT in this phase are Ukraine, Ghana, Finland, China, Saudi Arabia, Mexico, Bangladesh, Colombia, Iceland, Uruguay, and Latvia.
This excerpt has been published from India and Bilateral Investment Treaties: Refusal, Acceptance, Backlash by Prabhash Ranjan, with permission from Oxford University Press