India’s Trade Treaties & Road to a Global Arbitration Hub

Syllabus: GS2/IR; GS3/Economy

Context

• India’s expanding network of Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) has renewed attention on investment protection and dispute settlement, particularly how treaty policy can strengthen commercial arbitration within India.

About India’s Trade Treaties

• India has been negotiating new Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) with major economic partners to facilitate investment, market access and greater economic integration.
• Recent agreements include:
  • BITs: UAE (2024), Uzbekistan (2024) and Israel (2025).
  • FTAs: European Free Trade Association (March 2024), the UK (July 2025), Oman (December 2025) and New Zealand (April 2026).
• These agreements demonstrate an evolution in India’s approach towards balancing investment protection, regulatory autonomy and dispute resolution.
• India already possesses the basic statutory framework for arbitration through the Arbitration and Conciliation Act, 1996, which covers domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.

Need for Commercial Arbitration

• International investors assess not only taxation and market access but also what happens when commercial relationships break down.
  • A predictable and enforceable dispute-resolution mechanism therefore forms an important component of the investment climate.
• Commercial arbitration can provide a middle path between:
  • Investor concerns over domestic litigation ↔ State concerns regarding international ISDS
• Strengthening arbitration in India can consequently complement the country’s expanding trade and investment relationships and support its aspiration to become a global arbitration hub.

Concerns & Issues: Beyond Market Access

• FTAs and the Absence of Investor-State Dispute Settlement (ISDS): India’s recent FTAs have generally omitted ISDS.
  • Foreign investors may seek greater certainty when disputes arise while preserving greater regulatory space for the State.
  • Future FTAs could explain why ISDS is absent by highlighting the availability of effective commercial arbitration remedies in India.
• Distinguishing Investment and Commercial Disputes: Investment treaty arbitration and contractual commercial arbitration operate on different legal foundations.
  • For example, the India-Uzbekistan BIT excludes disputes arising solely from an alleged breach of contract between the State and a foreign investor from ISDS.
  • The treaty requires exhaustion of local remedies for access to ISDS.
  • Future BITs could clarify whether submitting the substance of an investment dispute to commercial arbitration seated in India can satisfy this requirement.
  • This would create greater coherence between treaty-based remedies and contractual dispute resolution.
• Third-Party Funding: India’s recent BITs indicate governmental reservations regarding third-party funding in ISDS, partly because investment claims can involve sovereign decisions and potentially affect regulatory policymaking.
  • However, these concerns are distinct from ordinary commercial arbitration.
  • A blanket inference that prohibition of third-party funding in ISDS prohibits it in commercial arbitration could restrict access to dispute resolution.
  • India therefore needs a clear and comprehensive framework governing third-party funding in commercial arbitration, consistent with international practice.

Related India’s Efforts

• India’s arbitration framework rests principally on the Arbitration and Conciliation Act, 1996.
• Legislative reforms and the increasingly pro-arbitration approachof courts in India have sought to improve the arbitration ecosystem, and continuous evolution of Indian arbitration law, like:
  • judicial intervention and the enforcement of arbitral awards;
  • the relationship between commercial and investment arbitration;
  • third-party funding;
  • India’s Model BIT and ISDS framework; and
  • India’s role in international commercial arbitration.
• Thus, treaty reform and domestic arbitration reform should be viewed as interconnected rather than separate policy tracks.

Way Forward: Building & Strengthening India as an Arbitration Hub

• India can leverage its growing treaty network through measures like:
  • Treaty Clarity: Future FTAs can explain how the absence of ISDS relates to India’s domestic dispute-resolution framework.
  • Clearer BIT Drafting: BITs should expressly distinguish treaty claims from contractual commercial disputes.
  • Broader Local Remedies: Commercial arbitration in India could be expressly recognised where treaties require exhaustion of local remedies.
  • Regulated Third-party Funding: India should develop a coherent framework addressing disclosure, conflicts of interest and procedural safeguards.
  • Predictable Enforcement: Courts should continue a consistent, pro-arbitration approach with limited and principled intervention.

Conclusion

• India does not need to make every BIT or FTA an arbitration treaty. The larger objective should be a coherent dispute-resolution ecosystem, i.e. treaties that prevent disputes where possible, arbitration that resolves them efficiently, and courts that enforce awards predictably.
• Commercial arbitration can become more than a legal mechanism if aligned with its expanding trade and investment network, and it can form part of the infrastructure that gives international businesses greater confidence to make long-term commitments in India.

Source: TH