India Revises BIT Framework for FDI: What Foreign Investors & Indian Businesses Should Know

Overview: India has approved a revised Model Bilateral Investment Treaty (BIT) framework to strengthen investment protection while preserving the Government’s regulatory and policy-making powers. The new model will guide the renegotiation of existing BITs and future investment agreements. The move comes alongside changes to India’s FDI framework, including a revised approach to certain investments involving non-controlling beneficial ownership from countries sharing a land border with India.

India has updated its approach to bilateral investment treaties to attract  long-term foreign investment while retaining safeguards for its regulatory and taxation powers. The revised Model BIT is intended to provide greater clarity on investment protection and dispute resolution in India’s future investment agreements.

For businesses, however, a BIT is only one part of the investment framework. Foreign investors and Indian companies receiving overseas capital must continue to comply with India’s FDI policy, FEMA requirements, sectoral conditions, pricing rules and reporting obligations.

India Approves Revised Model BIT Framework

The Union Cabinet has approved the revised Model Text for the Indian Bilateral Investment Treaty, replacing the existing Indian Model BIT. The revised model will be used for renegotiating existing BITs and negotiating future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs), Comprehensive Economic Partnership Agreements (CEPAs) and Free Trade Agreements (FTAs).

The revised framework is intended to provide appropriate protection to foreign investors in India and Indian investors overseas while maintaining a balance between investor rights and government obligations. The Government has also said that the revised model takes into account international precedents and practices relating to investment treaties and investor-State dispute settlement.

One important element is Investor-State Dispute Settlement (ISDS). The revised model retains a requirement for investors to exhaust local remedies before commencing international arbitration. The final treaty terms, however, can differ from the model depending on the negotiations with individual countries.

The revised model also preserves the Government’s regulatory space by excluding areas such as taxation, government procurement, subsidies, compulsory licences and national security from its scope. It further provides for monetary compensation as the remedy that an investment tribunal can award.

India’s BIT review comes as the country works towards strengthening its investment treaty network. Current negotiations include arrangements with major economic partners, while the revised model is expected to provide the framework for future negotiations.

What Is a BIT and How Does It Work?

A Bilateral Investment Treaty (BIT) is an agreement between two countries that establishes protections and rules for investments made by investors of one country in the other.

Depending on the treaty, protections can cover areas such as:

• non-discriminatory treatment;
• protection against certain forms of expropriation;
• due process and fair treatment;
• protection of investments; and
• mechanisms for resolving investment disputes.

One important feature is Investor-State Dispute Settlement (ISDS). Subject to the applicable treaty and its conditions, an eligible foreign investor may be able to bring an investment dispute against the host State before an international arbitration tribunal.

A BIT, however, does not replace India’s domestic FDI rules. Treaty protection and permission to invest are separate issues. A foreign investor must still satisfy India’s applicable FDI policy, sectoral restrictions, entry route, ownership requirements and other regulatory conditions.

FDI Compliance: What Businesses Should Know

The revised BIT framework does not replace India’s FDI or FEMA compliance framework. Indian companies receiving foreign capital must continue to comply with applicable domestic requirements, including:

• applicable FDI policy and sectoral caps;
• automatic or Government approval requirements;
• FEMA requirements and reporting;
• beneficial ownership conditions;
• valuation and pricing rules; and
• investment and shareholding documentation.

India has also eased selected FDI conditions. Under Press Note 2 of 2026 and the corresponding amendment to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, investors with non-controlling beneficial ownership from land-bordering countries of up to 10% can invest through the automatic route, subject to applicable sectoral caps, entry routes and other conditions. 

The revised framework applies the beneficial ownership test at the level of the investor entity.

The Government has reported 29 FDI investments under the revised framework, involving proposed FDI of ₹4,895.65 crore, up to 20 August 2026.  The investments span sectors including information technology, artificial intelligence, information and communication, manufacturing, pharmaceuticals, data centres and transport services.

The distinction between proposed FDI and actual FDI inflows is important. The ₹4,895.65 crore figure represents the proposed investment associated with the 29 reported investments; it should not be treated as capital already received in India.

What the BIT Changes Mean for Businesses

For foreign investors, the revised Model BIT could influence the protections and dispute-resolution mechanisms available under India’s future investment treaties.

For Indian companies seeking foreign capital, the immediate compliance question remains domestic: How will the investment be structured and what approvals, conditions and reporting will apply?

Before receiving foreign investment, businesses should assess:

• whether the proposed investment falls under the automatic or Government route;
• the applicable sectoral cap and conditions;
• the ownership and beneficial ownership structure;
• valuation and pricing requirements;
• required regulatory filings and reporting; and
• the documentation needed to establish the investment trail.

The treaty between India and the investor’s home country may provide an additional layer of protection, but that protection depends on the specific treaty, the definition of a protected investment, investor eligibility and the conditions for invoking its dispute-resolution provisions.

Setindiabiz Support

Foreign investment involves more than bringing capital into an Indian company. Businesses must align the investment structure with applicable FDI policy, FEMA requirements, sectoral conditions, ownership rules and reporting obligations. Setindiabiz supports Indian businesses and foreign investors with FDI structuring, FEMA compliance, regulatory documentation, business structuring and ongoing compliance support. Out experts assist businesses in assessing the appropriate investment route, applicable sectoral conditions, ownership requirements and regulatory approvals before and after receiving foreign investment, helping your business avoid unwarranted delays and stay compliant right from the onset.

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