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Challenges of India’s Investment in Bangladesh

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August 26, 2024

Why in news?

The latest political crisis in Bangladesh will impact Indian companies operating in Bangladesh.

How foreign investments are protected?

  • Foreign investments – It refers to the investment in domestic companies and assets of another country by a foreign investor.
  • Protection measures - There are three basic legal frameworks broadly apply to foreign investment.
    • Domestic laws
    • Contractual agreements
    • International laws
  • Domestic laws – Legal safeguards of the country where the investment is made.
  • Contracts – It may have been signed between the foreign investor and the government of the host state, or among foreign investors and companies of the host state.
  • International Laws – Laws contained in applicable treaties, customs, and general legal principles that have attained the status of international law.
    • For example, Bilateral Investment treaty (BIT)
  • Challenges – The domestic law of the host state is unreliable as it can be changed unilaterally by the state.
  • The contracts may be of limited value when it comes to challenging the sovereign actions of the state that adversely affect foreign investment.

What is bilateral investment treaty (BIT)?

  • NeedInternational law cannot be changed unilaterally and can be used to hold states accountable for their sovereign actions.
  • When protecting foreign investment, the most crucial instrument in international law is a bilateral investment treaty (BIT).
  • BIT - A reciprocal treaty between two countries aimed at protecting investments made by investors of both countries.
  • Role – It protect investments by imposing conditions on the regulatory behaviour of the host state, thus preventing undue interference with the foreign investor’s rights.
  • Provisions – It restrict the host state from unlawfully expropriating investments.
  • It imposes obligations on host states to accord fair and equitable treatment (FET) to foreign investment and not to discriminate against foreign investment.
  • It enable investors to sue the host state before an international tribunal if the host state has breached its treaty obligations which is known as investor-state dispute settlement (ISDS).
    • According to the United Nations Conference on Trade and Development (UNCTAD), by the end of 2023, the total number of known ISDS claims stands at 1,332.
  • Significance – It promotes foreign investments, protect the investments through dispute resolution mechanisms.

How India’s investment in Bangladesh can be protected?

  • India’s investment – Indian companies have invested in Bangladesh in sectors such as edible oil, power, infrastructure, fast-moving consumer goods, automobiles, and pharmaceuticals.
  • Protection means - Indian companies can use the Bangladesh domestic laws, contracts and international laws to protect their investments from regulatory risks.
    • For instance, Bangladesh’s Foreign Private Investment (Promotion and Protection) Act.
  • India-Bangladesh BIT – It was signed in 2009 that contains investment protection features
    • For instance, unqualified FET provision allows Indian companies to challenge Bangladeshi sovereign regulatory conduct.

While India has unilaterally terminated almost all its BITs, the one with Bangladesh continues to exist.

  • BIPPA - Bilateral Investment Promotion and Protection Agreement was signed in 2015, a type of BIT designed to foster and safeguard investments between the two nations.
  • Joint Interpretative Notes (JIN) – It was adopted in 2017 to clarify the meaning of various terms in the 2009 treaty, adopted on India’s insistence.

What are the challenges for India’s investments in Bangladesh?

  • Political crisis - The interim/ new government may adopt a hostile attitude towards Indian companies.
  • It might change the existing laws or adopt new regulatory measures that may adversely impact Indian capital.
  • Issues with JIN – It was done without considering whether India has an offensive or defensive interest vis-à-vis a specific country.
  • It has diluted the investment protection features of the BIT.
    • For instance, taxation measures are excluded from the ambit of the BIT.
  • It has been designed from the perspective of the capital-importing country to safeguard its regulatory conduct from ISDS claims.
  • Between India and Bangladesh, New Delhi is the capital exporter, and Dhaka is the importer.
  • Ironically, the JIN that India developed might work to the advantage of Bangladesh, and not the Indian capital operating there.

What lies ahead?

  • India should facilitate high-level visits from both countries to reinforce the commitment to the BIT.
  • India must adapt its investment treaty practices to balance both host and home country interests, ensuring robust protection for its investments.

Reference

The Hindu | Challenges for India’s Investment in Bangladesh

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