In an earlier article (‘BJP is winning the elections, but losing the economy,’ IE, May 21), I had expressed worry and concern over declining private investment in India. I had suggested that the large reduction in the share of private investment in India was a decade-old problem, and one most likely caused by a worsening investment climate in India. I suggested that the investment climate had deteriorated after (induced by?) the stringent rules against foreign direct investment (FDI) enacted by the 2015 Model Bilateral Investment Treaty. The government constructively answered, via CEA Ananth Nageswaran (‘We need to speed up economic reforms, but pessimism obscures, doesn’t illuminate,’ IE, May 23). In this article, I use Indonesian and Indian BITs for illumination.
Indonesia: A tale of triumph
In 2014, Indonesia made a bold announcement that it was scrapping every one of its existing Bilateral Investment Treaties (BITs) and starting over with a new model. The trigger was a pair of foreign mining companies — Churchill Mining and Newmont — who had sued the Indonesian government for alleged violations of foreign investment law. Indonesia won both cases.
The Churchill Mining affair is especially instructive. The Indonesian government proved in court that Churchill’s local partner, the Ridlatama Group, had forged documents — including mechanically reproduced signatures of local government officials — to fraudulently obtain mining concessions. Ridlatama was well-connected, but Indonesia’s anti-corruption agency, the KPK, had real teeth. It deployed phone-tapping and financial-tracking powers to hunt down the regional politicians who had traded mining licences for campaign cash. By 2016, the KPK had indicted over 30 senior officials — among them six parliamentarians, three governors, and four district heads — for accepting bribes to fabricate resource permits. The corrupt officials went to jail. The Ridlatama Group was dissolved and its mining licences revoked, effectively shutting the door on prosecution of its executives while delivering the same result: The company ceased to exist.
The international business community warned Indonesia that taking on powerful multinationals would scare off the foreign investment it badly needed. That warning has not aged well. In the decade before 2015, Indonesia attracted an average of $14 billion a year in inward foreign direct investment (FDI), with net FDI running at 1.1 per cent of GDP. In the decade since its new approach, inward FDI has risen to $20 billion a year, and net FDI to 1.4 per cent of GDP — even as global FDI flows became more competitive, rising from $0.65 trillion in 2004 to $1.6 trillion today.
Indonesia has since signed only two new BITs, one of them with Singapore. That treaty reveals the country’s new philosophy: A cooling-off period of just 12 months, followed by a three-judge panel — one chosen by each party, and a presiding judge agreed upon by both, who must be a national of neither country. It is lean, neutral, and fast.
India: A tale of self-inflicted woes
India watched Indonesia and drew the wrong lessons. Like Indonesia, India cancelled its existing BITs in 2016, prompted by a dispute with an Australian mining company, White Industries. But the Indian case had a twist: The domestic party was not a private firm but Coal India — a company owned by the Indian government itself. White Industries had won an arbitration award of just $2.2 million. Yet thanks to crushing backlogs and procedural gridlock in the Calcutta and Delhi High Courts, a decade passed with no result, and no award. In 2011, White Industries sued the Government of India, won, and the Supreme Court ordered Coal India to pay interest and legal costs on top of the original sum.
India’s response to this embarrassment was to pass a new Model BIT in 2015, which is the most restrictive BIT passed by any government — it is a model of defensive state protection. In contrast to Indonesia’s requirement of a 12-month cooling period, the Indian BIT required 60 months. Sixty months in Indian courts before any international arbitration could begin. This was not reform — it was retrenchment.
Nine years on, the Finance Minister announced in the 2025 Budget that India would finally revise the 2015 Model BIT policy. That revision has yet to materialise. It appears that the government’s idea of a concession is trimming the mandatory court reconciliation period from five years to three years — while still routing disputes through Indian courts and possibly through a tribunal chaired by an Indian judge.
Two new governments in 2014 — Indonesia and India. Both wanted reform of BITs. One chose the forward path. The other chose deep regression. One gained the respect and money of international investors. The other gained contempt and exodus.
The Chief Economic Adviser, V Anantha Nageswaran, has made two arguments in India’s defence: That BITs have “weak or no effect” on FDI inflows, and that inward FDI hit a record in 2025–26 in any case.
Both deserve scrutiny. Yes, gross inward FDI reached a nominal record of $94.5 billion in 2025–26. But the more meaningful figure — net inward FDI, after subtracting repatriated profits and capital — was $41 billion, marginally below the $41.7 billion recorded in 2008–09. Meanwhile, Indian companies sent a record $33.3 billion out of the country as outward FDI in the same year (2025-26) — money that might otherwise have been invested at home. When measured as a share of GDP, net FDI stood at 0.77 per cent — the second lowest on record, with only 2004–05 coming in lower at 0.73 per cent.
Indonesia bet on the rule of law, a cleaned house, and watched investment flow in. India dressed up a flawed system in new paperwork and called it reform — and capital has responded accordingly. When a country cannot persuade the world that a $2 million arbitration award will be honoured without a decade of courtroom theatre, the numbers in the FDI ledger are not a mystery. They are a verdict.
Bhalla is chairperson of the Technical Expert Group for the first official Household Income Survey for India. Views are personal