India’s FTA strategy: rethinking dispute resolution beyond investor-state dispute settlement

India’s economy is expanding rapidly, with an 8.2% growth rate in 2023, making it one of the world’s fastest-growing major economies. The IMF projects India to be the fastest-growing major economy for the next two years in real GDP terms, at a rate almost double of the world output average. With a workforce of over 500 million and a projected consumer market set to become the world’s second largest by 2030, international interest in India has never been higher.

Though the ongoing global headwinds caused by rising protectionism and tariff wars have prompted many nations, including India, to reconsider what a "balanced" trade deal should entail.

How has India’s approach shifted towards these legal instruments – from its latest agreement with the European Free Trade Association (EFTA) states to ongoing negotiations with key global partners? And how do its recent agreements handle dispute resolution?

Overview of India's BITs and FTAs

From the 1990s onwards, India signed bilateral investment treaties (BITs) with 83 countries based on the Indian Model BIT of 1993 until 2015. India revised its Model BIT text in 2015 in response to numerous claims under its existing BITs (at one point, there were 37 notices of dispute or letters intending to raise a dispute against India under various BITs). It reviewed its foreign investment regime and terminated several BITs. The 2015 Model BIT serves as the foundation for India's future negotiations on new and revised bilateral investment treaties.

Key features of the Model BIT include, in particular, the exhaustion of local remedies: that investors are required to pursue all domestic legal avenues for a minimum period of five years before initiating international arbitration (Article 15.2 of the Model BIT 2015).

To initiate arbitration, the investor must satisfy several conditions precedent: namely (i) the lapse of six years since the investor first became aware of the loss affecting its investment, (ii) domestic proceedings must have concluded no more than twelve months prior to initiating arbitration, and (iii) the investor must formally consent to arbitration through a notice of arbitration at least 90 days before formally initiating the proceedings (see Article 15.5 of the Model BIT 2015).

Regarding the substantive investor protection obligations, the protections under the Model BIT are limited because the definitions are narrower (Articles 1 and 2 of the Model BIT 2015) and it omits a broad fair and equitable treatment clause (FET). The model BIT does not include a Most Favoured Nation clause. National Treatment has been retained as the sole non-discrimination obligation.

This new approach is also reflected in India’s regulation of foreign trade policies. It has also entered into several free trade agreements (FTAs) in the last decade. India's most recent agreements, the India-Australia Economic Cooperation and Trade Agreement (INDAUS ECTA) and the India-UAE Comprehensive Economic Partnership Agreement (CEPA), do not include general provisions for fair and equitable treatment, protection against expropriation and investor-state dispute settlement (ISDS) mechanisms. Rather, the investment protection standards are limited to specific chapters.

India's evolving approach to FTAs and BITs underscores its commitment to fostering international trade and investment while safeguarding its regulatory autonomy and national interests. India intends to further revamp its BIT regime. The Indian finance minister announced in her recent annual budget speech that, to encourage sustained foreign investment and in the spirit of "first develop India", the current model BIT will be revamped and made more investor-friendly.

Trade and Economic Partnership with the EFTA countries and the UK

On 10 March 2024, India signed the Trade and Economic Partnership Agreement (TEPA) with the EFTA states (comprising Switzerland, Norway, Liechtenstein and Iceland). This agreement marks India’s first free trade agreement with the EFTA bloc, to strengthen economic ties with these non-EU European states.

One of the key features of the TEPA is the aspirational commitment by EFTA states to invest US$ 100 billion in India over the next 15 years, with the potential to generate 1 million jobs (Article 7(1)(3)). This is expected to significantly boost India’s economy and employment prospects.

In addition, TEPA enhances market access by eliminating tariffs on most industrial goods, (Article 2(4)), offering enhanced market access for goods and services between India and EFTA countries.

A distinctive aspect of TEPA is its approach to investment protection. Unlike traditional BITs or FTAs, the TEPA does not contain an express FET clause or specific protection against expropriation without compensation. Instead, it establishes specific standards of protection within each chapter of the agreement (for example, Articles 2.7, 6.3), focusing on clear and defined provisions rather than broad and potentially expansive interpretations.

Another noteworthy feature of the TEPA is its dispute settlement mechanism. First, only states and not private investors can seek settlement of disputes under TEPA. If consultations fail, it provides for an ad hoc arbitration procedure in Chapter 12 as well as Annex 12A. This procedure allows a panel to make binding findings of law and fact, and it may issue "recommendations" directing a party to modify or remove an non-compliant measure, unlike the awards in traditional investor-state dispute settlement mechanisms. If the defaulting party does not comply with the final report, the parties can agree on mutually acceptable compensation. If no agreement is reached, then the complaining party shall be entitled to suspend the application of benefits granted under TEPA.

On 6 May 2025, India and the UK successfully concluded their talks on an FTA. The content of this FTA is comparable to TEPA. The India-UK FTA yielded key achievements in the areas of labour migration, tariff reductions and agriculture. In addition, the India-UK FTA provides for a similar dispute resolution mechanism as TEPA, providing for a government-led dispute settlement mechanism thereby limiting the role of full-fledged arbitration proceedings. The full details of the FTA are expected to be finalised and published shortly.

The agreements that India has concluded with the EFTA countries and the UK will hopefully set the tone and pace for two other important FTAs that are in the pipeline, with the EU and the US. At the same time, the negotiated frameworks could serve as guideposts for these negotiations, illustrating both India's demands and its willingness to make concessions.

Further trade deals on the horizon

In its effort to reshape its foreign investment and trade regime, India is currently negotiating and renegotiating key trade and investment agreements with major global partners, including the United States and the European Union.

India and the US make steady progress towards an FTA, with both nations committed to expanding bilateral trade to US$ 500 billion by 2030. Negotiations held in New Delhi in March 2025 focused on reducing tariffs, eliminating non-tariff barriers and enhancing market access across key sectors. In response to US tariff concerns, India has proposed lowering duties on select US agricultural imports and is considering tax reductions on liquefied natural gas to facilitate trade expansion. Lowering tariffs solely for the US could violate WTO rules due to the Most Favoured Nation clause, requiring equal treatment for all trading partners.

India and the EU – India's largest trading partner – are also working towards concluding a comprehensive free trade agreement by the end of 2025. Negotiations resumed in May 2021 after a hiatus from 2013 to 2021. They have encountered challenges, particularly concerning tariffs on automobiles and alcoholic beverages, as well as regulatory issues related to the environment (including carbon taxes on steel, aluminium and cement). However, both parties remain committed to finalising the deal, recognising its potential to significantly boost bilateral trade, which amounted to €125 billion in goods and €60 billion in services in 2023. It has been reported that main sections of the dispute settlement text are now substantially agreed upon. It is likely that India will insist on investment protection mechanism that aligns with its revised investment treaty framework, emphasising sovereign policy space while addressing investor concerns over dispute resolution mechanisms.

India and the Association of Southeast Asian Nations (ASEAN) countries have been partners in trade since the signing of the ASEAN-India Trade in Goods Agreement in 2009. Currently, this agreement is under review to address evolving trade dynamics and to further enhance economic cooperation between India and ASEAN member states. This review presents an opportunity to modernise and strengthen the terms of trade to reflect the growing importance of this relationship in the broader Indo-Pacific region.

These ongoing negotiations highlight India's strategic focus on strengthening its trade relationships globally. With several high-stakes agreements in progress, India is positioning itself to secure favourable terms that will support its economic growth and further integration into the global marketplace.

Balance of rights

India’s current approach to negotiating BITs and FTAs seeks to balance foreign investors’ rights with the state’s sovereign right to regulate. The EFTA TEPA and India-UK FTA demonstrates how India can attract investment while protecting its priorities, offering a potential model template for deals with the US, EU and beyond.

This shift affects not only the states but also businesses engaged in cross-border investment. On the one hand, moving away from investor-state arbitration may reduce the risk of protracted and costly litigation; on the other, it limits investors’ direct access to private resolution mechanism. As a result, an investor would have to rely more on his home government to pursue his claim. This, in turn, has the potential to introduce political considerations into the dispute resolution process, which can reduce the predictability and neutrality typically associated with private arbitration.

For businesses, workers and consumers, these deals make it cheaper and easier to trade, and reduce red tape and tariffs. At the same time, the new investment and trade strategy may offer significant opportunities for foreign investors and trade partners to access the Indian market by bringing down barriers to trade and creating diverse and resilient supply chains.

This article was co-authored by Janine Haesler (Vischer AG). We thank Karishma Motla (BTG Advaya) for her input.