India UAE Investment Pact

India recently signed a Bilateral Investment Treaty (BIT) with the United Arab Emirates (UAE), introducing significant changes to boost investor confidence and strengthen economic ties. The agreement, effective from August 31, 2024, notably reduces the period for foreign investors to seek international arbitration from five years to three. This faster dispute resolution mechanism allows investors to pursue arbitration if their grievances are not resolved by the Indian judicial system within the stipulated timeframe.

An important aspect of this new BIT is the expanded investment protection, which now includes financial instruments like shares and bonds. This broader scope of coverage enhances the treaty’s appeal to investors, safeguarding a wider range of assets. Additionally, the Investor-State Dispute Settlement (ISDS) mechanism provides an independent forum for addressing disputes, ensuring a more stable and predictable investment environment.

Union Commerce and Industry Minister Piyush Goyal emphasized that the BIT aims to create a robust framework for dispute resolution, fostering greater investor confidence. However, experts from the Global Trade Research Initiative (GTRI) caution that while the treaty may attract increased UAE investment, it could also result in more arbitration claims, particularly concerning financial instruments, potentially diverting focus from long-term investments that drive sustainable economic growth.

The UAE remains a crucial partner for India, contributing 3% to its total Foreign Direct Investment (FDI) inflows, positioning this BIT as a strategic move to enhance future economic collaboration.