India is reportedly considering a limited Most-Favoured Nation (MFN) provision as part of its proposed overhaul of the bilateral investment treaty framework. According to official sources, the proposed framework could allow a qualified MFN provision in investment treaties with large economies, including major trading partners such as the European Union (EU). The carefully circumscribed provision would be designed to give investors greater policy certainty without allowing them to rely on provisions from unrelated third-country treaties to make wider claims. As per The Financial Express, the move is seen as necessary not only to attract foreign investors, but also to enable Indian investors to get similar treatment in major economies like the US or EU on a quid pro quo basis.
India's decision to exclude MFN from its current model BIT followed the country's experience with investment arbitration, particularly the White Industries v India case in 2011. As reported by Business Standard, White Industries, an Australian company, invoked the MFN provision in the India-Australia BIT to rely on a protection contained in India's BIT with Kuwait. The tribunal allowed White Industries to rely on the 'effective means' standard provision from the India-Kuwait treaty, resulting in India being ordered to pay approximately ₹36 crore along with interest and costs. The case became an important part of India's review of its investment treaty policy, leading to the 2016 Model BIT's exclusion of MFN and adoption of a narrower definition of investment. According to The Financial Express, the 2015 BIT rule of not granting open-ended MFN or full Fair and Equitable Treatment (FET) standard will be retained, reflecting concerns arising from the legacy of past disputes.
India's approach became more restrictive after the White Industries case, with the government terminating or seeking to renegotiate several older investment treaties. According to Business Standard reports, only a handful of countries, including Belarus, Kyrgyzstan, Brazil, Taiwan and Uzbekistan, have signed investment treaties with India under the stricter framework. The India-UAE investment treaty, which came into force in August 2024, and the India-Israel investment agreement, effective from July 4, 2026, have already moved away from some elements of the older model, including reducing the domestic-remedies period from five years to three years and covering a wider range of financial investments. As reported by The Financial Express, the India-UAE and India-Israel agreements demonstrate the shorter ISDS windows are already being implemented in recent agreements.
The MFN proposal forms part of a broader review of India's investment treaty framework, with the Finance Ministry circulating a draft Cabinet note proposing significant changes to the existing model. According to The Financial Express, the draft Cabinet note proposes reducing the domestic-remedies period under ISDS to just one year from the present five years, doubling investor protection after the BIT expires to 10 years, and widening the definition of investment to include portfolio investments and other financial assets. The proposed changes would not amount to a return to India's earlier, broader investment treaties, with the MFN provision under consideration being limited in scope while other safeguards introduced after the White Industries case would remain part of the framework. The overhaul also seeks to make India's investment framework more familiar to international investors by potentially bringing portfolio investments and other financial interests under treaty protection. The proposal also seeks to ban third-party funding of investment-related litigation, as reported by UPSC Mains Current Affairs, to further strengthen the framework.
The proposed changes come against a backdrop of weakening foreign investment flows into India. Net FDI has fallen from close to $40 billion a year on average in FY20-FY22 to roughly $7.65 billion in FY26 on preliminary data, even as outbound investment by Indian firms has risen sharply. As reported by The Financial Express, the decline in net FDI, alongside the growing overseas footprint of Indian companies, has added to the pressure to make India's investment regime more competitive and predictable. The European Union has moved away from open-ended MFN towards its Investment Court System model, while retaining non-discrimination protections, and India can potentially offer enhanced investor protection in certain cases under a similar arrangement. Analysts suggest that a qualified MFN could address investor concerns while avoiding the risks of pure MFN provisions that are fraught with uncertainties. The success of the proposed framework will depend on the precise safeguards adopted, the strength of domestic dispute-resolution institutions and India's ability to balance investor confidence with regulatory autonomy.
