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The Union government is reported to be considering a Qualified Most Favoured Nation provision as part of a broader restructuring of India's bilateral investment treaty framework.
Rather than restoring the open-ended MFN clause dropped from the 2015 Model BIT, a qualified version would keep non-discrimination but limit which third-country treaty provisions an investor may import.
The draft also proposes cutting the period for which an investor must pursue domestic remedies before international arbitration from five years to as little as one, and doubling post-treaty protection from five years to ten.
The stated aim is to answer the objections of partners such as the European Union without reopening the exposure that followed India's first adverse investment-treaty award.
In an investment treaty, a Most Favoured Nation clause obliges a host state to give investors of one treaty partner treatment no less favourable than it gives investors of any other country. The difficulty is that arbitral tribunals have read such clauses broadly. If India signs a later treaty with Country B containing a more generous protection, an investor from Country C can argue that the MFN clause in the India-C treaty entitles them to that protection too - importing a term India never negotiated with Country C. That is 'treaty shopping', and it means the state's exposure is set not by any single agreement but by the most generous clause in its entire treaty network. India's 2015 Model BIT responded by leaving MFN out altogether, along with an open-ended fair and equitable treatment standard. A Qualified MFN is the middle path: the principle of non-discrimination survives, but the treaty text itself specifies the boundaries - which provisions can travel, whether the clause reaches backwards in time, and whether concluded disputes can be reopened.
Simple Analogy: An open-ended MFN clause is a most-favoured-customer promise with no fine print: every discount you ever offer anyone must be given to this customer too. A qualified MFN is the same promise with the fine print written in - which discounts count, and from which date.
| Element | Model BIT, 2015 | Reported proposal |
|---|---|---|
| MFN treatment | Omitted; no open-ended MFN clause | Qualified MFN, with limits on what may be imported and from when |
| Domestic remedies before arbitration | At least five years | As little as one year |
| Protection after the treaty expires | Five years | Ten years |
| Definition of investment | Narrow, enterprise-based | Wider |
GS Paper III > Indian Economy - investment models, effects of liberalisation; GS Paper II > Bilateral agreements involving India
General Awareness > Economy, FDI policy and international agreements
General Awareness > Indian Economy
With reference to 'National Investment and Infrastructure Fund', which of the following statements is/are correct? 1. It is an organ of NITI Aayog. 2. It has a corpus of ₹4,00,000 crore at present. Select the correct answer using the code given below:
Answer: Neither 1 nor 2
An agreement between two states setting the rules for protecting investments made by investors of one in the territory of the other.
An obligation to treat investors of one treaty partner no less favourably than investors of any other country.
An MFN clause with express limits on which third-country treaty provisions may be imported, whether it operates retrospectively, and whether settled disputes may be reopened.
A mechanism allowing a foreign investor to bring a claim directly against the host state before an international arbitral tribunal.
A broad treaty standard requiring the host state to treat investments fairly; India's 2015 model replaced the open-ended version with a narrower, closed list of prohibited conduct.
The provision that keeps investments protected for a stated period after a treaty ends; proposed to rise from five years to ten.