Finance Ministry has finalized a model agreement between the Centre and states for the effective implementation of bilateral investment protection agreements (BIPAs or BITs) between India and other countries. The model agreement ensures states commitments to protect the interest of foreign investors. BIPA is signed between the central government and other countries for providing protection to foreign investment.
Bilateral Investment Promotion and Protection Agreements (BIPAs) are agreements between governments of two Countries for the reciprocal promotion and protection of investments in each other’s territories by individuals and companies situated in either State. They provide treaty based protection to foreign investment. The BIPAs are thus bilateral agreements by countries to protect the investment by each country’s investors in the other country.
BIPAs are now instrumental in giving safety and mutual trust for cross national investors. Though the BIPAs are signed by governments, the beneficiaries are business entities. Investment protection is given for investment by companies in other countries.
India has signed nearly 82 BIPAs with other countries. These agreements are commitments from the central government to protect the safety as well as non-discriminatory treatment to foreign investors.
Why states participation is needed?
State governments’ policies are decisive in facilitating foreign investment as well as their protection. Any adverse decision may hurt the investor’s interest and they may resort to the BIPAs. Invoking BIPAs means Government of India has to make compensation to foreign investors. Hence, cooperation as well as commitment from states is needed for the effective implementation of BIPAs.
In the budget 2016, FM has announced the design of a model agreement between the Centre and states on BIPAs.
The new framework implies that companies will go to only those states who signs the model agreements with Centre. Similarly, the states will have more bindings to protect the interest of foreign investors.