I. Introduction

On 27 January 2026, India and the European Union announced that they had concluded negotiations for a Free Trade Agreement. Amounting close to two billion consumers and approximately a quarter of global GDP,  European Commission President Ursula von der Leyen described this as the ‘mother of all deals’. Yet the single most consequential portion of the arrangement, the Investment Protection Agreement, remains unresolved, and with it the question of whether European investors will retain any direct route to arbitrate claims against the Indian state. 

That gap did not arise by accident. It is the latest stage in a decade-long, deliberate narrowing of India’s stance to investor-State arbitration that began with the 2016 termination of almost the entire bilateral investment treaty network, and that now appears to be heading toward a framework built on state-to-state dispute settlement rather than direct investor access. This piece traces that evolution from the permissive treaty architecture of the pre-2016 period, through the restrictive 2016 Model BIT, to India’s most recent treaty practice and places the India-EU negotiations within it.

II. An Open Door: The Pre-2016 Treaty Architecture

India’s bilateral investment treaty (BIT) programme opened in 1994 with the United Kingdom and expanded quickly after economic liberalisation, eventually amounting to 83 signed treaties, of which 74 were in force by 2015. These early instruments shared a similarity: an asset-based definition of ‘investment’, an ‘investor’ test that rarely demanded any genuine business presence in India, no requirement that a claimant first exhaust domestic remedies, and, in many cases, a ‘fork-in-the-road’ clause that simply asked the investor to choose a forum rather than to seriously attempt one before turning to the other. Cumulatively, these features left the regime exposed to forum shopping, in which investments were routed through convenient jurisdictions purely to unlock arbitral access.

Paired with an unqualified fair-and-equitable-treatment (FET) standard and, frequently, a most-favoured-nation (MFN) clause, this architecture created an inherently low threshold for reaching an international tribunal. That threshold was tested and found wanting from India’s perspective in White Industries Australia Ltd v Republic of India, where a tribunal used the MFN clause in the India-Australia BIT to import a more claimant-friendly dispute-resolution provision from a wholly different Indian treaty. The 2011 award is widely credited with opening the floodgates: by 2015 India was facing seventeen known BIT claims.

The costliest of these grew out of India’s 2012 retrospective amendment to its tax code, passed after the Supreme Court had ruled in Vodafone’s favour in a domestic capital-gains dispute. Vodafone International Holdings BV brought a claim under the India-Netherlands BIT, and in September 2020, a tribunal held that the retrospective tax measure breached the treaty’s FET guarantee. Cairn Energy pursued a parallel claim under the India-UK BIT over the same measure, securing a December 2020 award of more than a billion dollars that it then sought to enforce against Indian state assets in France, the United Kingdom, the United States and Canada before the dispute was eventually settled. For Indian policymakers, Vodafone and Cairn together demonstrated how a permissive ISDS regime could reach directly into core sovereign functions such as taxation.

III. The 2016 Rupture: Termination and the Model BIT

India’s response was not a mere adjustment but a comprehensive structural overhaul. Between 2016 and 2024, India issued termination notices to 77 treaty partners, preserving only the small number of BITs whose renegotiation clauses made unilateral exit impractical. In their place, the government adopted a new Model BIT in 2015–16, presented as an attempt to balance investor protection against regulatory sovereignty.

The Model BIT reworked the architecture on several fronts at once. It narrowed the definitions of ‘investor’ and ‘investment’, requiring an eligible enterprise to show ‘substantial business activities’ in India. This is an enterprise-based test, drawn from established ICSID jurisprudence, that excludes representative offices and portfolio investments. More consequentially, Article 15 introduced a mandate for investors to pursue domestic remedies for at least five years, commencing within a year of learning of the disputed measure, before arbitration could begin, unless it could show that no domestic remedy was reasonably capable of providing relief. 

The Model BIT also dropped the MFN clause entirely, a direct response to White Industries and replaced the unqualified FET standard with a narrower ‘international minimum standard’ confined to denial of justice, fundamental breach of due process, targeted discrimination, and manifestly abusive treatment. Tax measures were carved out altogether, with the host state’s own characterisation of a measure as tax-related rendered non-justiciable, a provision aimed squarely at foreclosing future Vodafone- and Cairn-type claims.

The practical effect was a marked slowdown: between 2016 and 2022, India concluded only four new BITs – with Belarus, Brazil, Kyrgyzstan, and later Uzbekistan and the UAE, and even these departed from the Model BIT template to varying degrees. Notably, the 2024 India-UAE BIT shortened the exhaustion period from five years to three, hinting at the beginning of a calibrated, negotiated softening rather than a wholesale reversal.

IV. The Next Turn: Toward State-to-State Settlement

Since the 2025-26 Union Budget, the government has signalled a further revision of the Model BIT, this time loosening some restrictions while tightening others. Reports suggest the local-remedies window may be cut to a minimum of two years, with a one-year window reportedly under discussion in some ongoing negotiations, even as the exclusions of MFN clauses and taxation measures are retained. Chief Economic Adviser V. Anantha Nageswaran has defended this calibration on the ground that the empirical link between any single BIT and FDI inflows is weak, and that what matters for investor confidence is the cumulative credibility of India’s investment-protection framework rather than the generosity of any one instrument.

The more striking signal, however, lies in India’s newest trade instruments rather than in the Model BIT’s internal arithmetic. The India-EFTA Trade and Economic Partnership Agreement, in force since October 2025, contains no investment-protection chapter and no ISDS mechanism at all; investment-related friction is instead to be managed through a government-to-government ‘Desk Model’. The Desk Model operates through a dedicated India-EFTA facilitation body operational since February 2025, which channels investor grievances to the government before they escalate, rather than allowing investors to initiate binding third-party arbitration. Where a dispute nonetheless arises, investors must turn to India’s domestic courts or diplomatic channels, since TEPA does not permit claims to be brought directly against the host state under any international mechanism.  The choice mirrors a wider international trend: both Australia and the UAE have moved toward state-to-state dispute settlement in recent treaty practice, effectively withdrawing the private investor’s standing to sue and reserving the dispute for intergovernmental negotiation.

It is against this backdrop that the India-EU Investment Protection Agreement remains open even though the FTA itself has been concluded. As Pillai and Wong observe, the need for ratification across all twenty-seven EU member states, combined with the continuing evolution of India’s own Model BIT, means it is genuinely unclear whether the eventual instrument will preserve investor-state arbitration in any form, adopt a state-to-state mechanism along EFTA lines, or leave investment protection to whatever patchwork of bilateral treaties survives between India and individual member states. What is already clear is that the traditional ISDS model, which let Vodafone, Cairn, and White Industries sue India directly, and lets White Industries borrow more favorable terms through an MFN clause, is no longer the default model of Indian treaty negotiators.

V. Analytical Implications

Three shifts are worth analysing. First, a move from investor-state to state-to-state settlement would mark a return to a more classically Westphalian model in which the individual investor again depends on diplomatic espousal by its home state, a real regression in direct access compared with the ISDS expansion of the 1990s and 2000s. Second, even where ISDS survives in some guise, the combined effect of exhaustion requirements, narrower definitions of investors and investments, and blanket tax carve-outs shrinks the category of disputes that can reach arbitration at all, relative to the pre-2016 model. Third, removing the MFN clause forecloses the treaty-shopping route that proved decisive in White Industries, thereby confining future claimants to the specific, generally less generous terms of whichever single instrument actually governs their investment.

None of this means investor protection against India has disappeared; it means that access to it has become considerably harder to trigger, and considerably narrower once triggered.

VI. Conclusion

The unfinished investment chapter of the India-EU FTA is not a drafting oversight. It is the visible seam between two different institutional instincts: the EU’s preference for investor certainty through binding, investor-accessible dispute settlement, and India’s post-Vodafone insistence on preserving fiscal and regulatory sovereignty. Whichever design the Investment Protection Agreement eventually settles on a slimmed-down ISDS mechanism, a state-to-state framework, or no dedicated investment chapter at all the trajectory from the liberal BIT era of 1994-2015 through the restrictive 2016 Model BIT to today’s negotiations points toward one consistent policy preference. Arbitration against the Indian state, going forward, will be harder to invoke, narrower in scope, and less directly available to the individual investor than it was in the age of Vodafone.

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Aryan Qureshi and Yash Aggarwal are both fifth-year students at Indian Institute of Management Rohtak.

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