2 min readJun 10, 2026 06:05 AM IST
First published on: Jun 10, 2026 at 06:05 AM IST
Over the last few years there has been a flight of capital from India. Foreign portfolio investors took out $14.6 billion from the equity markets in 2024-25, $19.6 billion in 2025-26, and have so far this year withdrawn close to $15.8 billion. Alongside, there has been a sharp decline in net foreign direct investments (FDI). While gross FDI flows have risen from $80.6 billion in 2024-25 to $94.5 billion in 2025-26, net FDI flows stood at just $7.7 billion last year, up from an even lower $1 billion the year before. The collapse in net FDI can be traced to higher repatriation and outward investments by Indian firms. Several explanations have been put forth to explain the trends in FDI flows and investor preferences for other jurisdictions. One explanation revolves around Bilateral Investment Treaties (BITs).
India’s BIT 2016 model has been criticised on grounds such as “narrow definitions” and “procedural barriers” like the five-year exhaustion of local remedies before initiating international arbitration (Rethinking India’s Bilateral Investment Treaties, RIS Discussion Paper). Prior to the 2016 model, India had signed 83 BITs, of which 74 were ratified. Subsequently, termination notices were sent to 68 countries/regions till March 2023 with requests to renegotiate based on the new framework. However, since then, treaties have been signed with a few countries. The central government is now remodelling its BITs framework — in the Union budget 2025-26, Finance Minister Nirmala Sitharaman proposed that the current model BIT be “revamped and made more investor-friendly”. As per a report in this paper, the key principles on which this centres are a minimum two-year period for local remedies prior to accessing international arbitration, no most-favoured nation clause, and an exclusion of tax-related provisions.
At this critical juncture, the need to attract foreign capital cannot be emphasised enough. Legal certainty must be provided and existing frameworks should be simplified as procedural barriers will only dampen investor enthusiasm. An approach more mindful of investor sensitivities is called for.
