India-UAE 2024 BIT: Striking a Balance Between Investment and Autonomy

India and the UAE have strengthened their partnership by establishing a new Bilateral Investment Treaty (BIT) in 2024 during Prime Minister Modi’s February visit. This agreement, along with MoUs for digital infrastructure and payment interlinking, aims to enhance economic cooperation and boost bilateral investments by having key protections in place.

India and the United Arab Emirates (UAE) have fostered a robust bilateral partnership over several decades, significantly deepening their economic ties in recent years. This includes the establishment of the India-UAE Bilateral Investment Promotion and Protection Agreement (BIPPA) in 2013 and the Comprehensive Economic Partnership Agreement in 2022.

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During Prime Minister Narendra Modi’s visit to the UAE on February 13-14, 2024, both nations signed a new Bilateral Investment Treaty (BIT), along with several agreements, including a Memorandum of Understanding (MoU) for digital infrastructure projects and agreements linking payment platforms—specifically, India’s UPI with UAE’s AANE and India’s RuPay with UAE’s JAYWAN.

With the expiration of the 2013 BIPPA on September 12, 2024, India implemented the 2024 BIT retroactively from August 31, ensuring continued investment protection for investors from both countries.

The 2024 BIT highlights the commitment of both nations to enhancing economic cooperation and fostering a resilient investment environment, which is expected to stimulate increased bilateral investments and benefit businesses in both India and the UAE.

Key features of the India-UAE BIT 2024

The India-UAE BIT 2024 aims to protect foreign investments while preserving the regulatory autonomy of the host state, achieving a balanced approach. Key provisions include:

1. Definition of investment: The 2024 BIT adopts an asset-based definition of investment that includes portfolio investments, which were previously excluded under India’s 2016 Model BIT.
2. Treatment of investments: The agreement prohibits denial of justice, breaches of due process, discriminatory or arbitrary treatment, and abuses by the host state.
3. Full protection and security: The BIT restricts full protection to the physical security of investors and their investments, in accordance with international law standards for minimum treatment.
4. National treatment: Investors from both nations are entitled to treatment equivalent to that of local investors.
5. Exemptions and carveouts: The treaty exempts specific areas, including taxation, government procurement, subsidies, and compulsory licensing.
6. Investor-State Dispute Settlement (ISDS): The BIT reduces the local remedies exhaustion requirement from five years (as per the 2016 Model BIT) to three years before initiating arbitration.
7. State’s right to regulate: The BIT acknowledges the host state’s right to regulate in the public interest.
8. Anticorruption measures: Investments associated with corruption, fraud, or roundtripping are excluded from protection under the BIT.
9. Expropriation, transparency, and transfers: Provisions are established for expropriation, transparency in governance, transfer of funds, and compensation for losses.
10. Frivolous claims and arbitrator impartiality: Mechanisms are in place to dismiss frivolous claims and to prevent conflicts of interest among arbitrators.
11. Prohibition of third-party funding: The BIT explicitly prohibits third-party funding for investors.

Reviving India-UAE bilateral and trade relations

The new BIT between India and the UAE, effective from August 31, 2024, replaces the earlier 2013 BIPPA agreement, which expired on September 12, 2024. This treaty aims to deepen economic cooperation with the UAE, a key partner that has contributed approximately 3 percent of India’s foreign direct investment (FDI) inflows, totaling US$19 billion from 2000 to 2024.

The introduction of the BIT comes in response to a decline in India’s active bilateral treaties, particularly following the implementation of its 2016 Model BIT. Certain provisions within the 2016 model presented challenges during negotiations, leading to a decrease in FDI—specifically, a 24 percent drop in equity inflows and a 15.5 percent reduction in total FDI between April 2023 and September 2024.

In its 2024 Interim Budget, India reaffirmed its commitment to enhancing economic relations, with the India-UAE BIT positioned as an important safeguard measure. Notably, the new treaty introduces adjustments to several Model BIT stipulations, demonstrating a more flexible approach to negotiations.

For instance, while the previous Model BIT mandated investors to exhaust local legal remedies for five years before seeking international arbitration, the India-UAE 2024 BIT reduces this requirement to three years. This amendment could provide valuable insights for ongoing negotiations, such as India’s free trade agreement discussions with the UK, where similar concerns regarding utilization of local remedies have emerged as obstacles.

Another noteworthy provision of the 2024 India-UAE BIT is the prohibition of third-party funding in investor disputes. Historically, such funding has conflicted with India’s public policy principles grounded in the doctrines of champerty and maintenance. (Champerty refers to an arrangement in which an individual with no prior interest in a lawsuit funds the case with the intention of sharing the contested property if the lawsuit is successful.) This prohibition of third-party funding aligns with India’s legal framework and enhances the integrity of the dispute resolution process, reinforcing the commitment to a fair and transparent investment environment.

Next steps and future prospects

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The India-UAE partnership is set to grow further with the establishment of a US$2 billion UAE funded food facility in India, aimed at sourcing high quality food products for UAE markets. Following the 12th meeting of the India-UAE High-Level Joint Task Force on Investments, Indian Commerce and Industry Minister Piyush Goyal highlighted the UAE’s commitment to investing in India’s food processing and logistics sector. According to the minister, these investments will position India as a key exporter to UAE and Gulf markets.

The food facility project, planned to be set up in Ahmedabad, Gujarat state, is expected to strengthen collaboration between central and state governments in India and UAE authorities to advance food security, create jobs, and improve farmer incomes. Small working groups will oversee progress, ensuring alignment with both nations’ economic visions.

With the deepening economic partnership between India and the UAE, the goal of achieving US$100 billion in bilateral trade by 2030 appears to be in sight, highlighting the substantial progress in their strategic alliance.

Key takeaway

As India advances discussions for FTAs with the UK, EU, and other countries, the India-UAE BIT represents a step toward building a robust legal framework to assist with contract enforcement. Given complex geopolitical factors impacting global investment dynamics, the treaty implementation between India and the UAE will determine if this BIT can effectively balance foreign investment promotion with the host state’s regulatory autonomy, creating a stable foundation for cross-border commerce and trade.

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