According to two officials with direct knowledge of the matter at hand, the Indian government is planning on bringing a new law to safeguard foreign investment in the country, by speeding up dispute resolutions.
In the initial 40-page draft by the Indian finance ministry, it has been proposed to appoint a mediator and set up fast-track courts to settle disputes between investors and the government, said one of the sources.
“The idea is to attract and promote foreign investment, but a major issue for investors is enforcement of contracts and speedy dispute resolution,” said the source.
The proposal is aimed at diffusing investor mistrust around the sanctity of agreements, which has taken a hit following decisions by some state governments to review approved projects, or even cancel the contracts.
Sources prefered the cover of anonymity since the proposal is yet to be made public, and is still being assessed by different ministries and regulators.
According to a source, foreign investors perceive difficulties in the enforcement of contracts. The Modi government is addressing that concern by setting up a framework that reduces litigation.
Although investors have an option to take India to international arbitration courts under bilateral investment treaties (BITs) the government had agreed with dozens of nations, but with the Indian government allowing some treaties to lapse, foreign investors have less cushion in case of major disputes.
By introducing this new law, the government’s thinking is that there may not be a need to sign a BITs with nations since the new law will be modeled on a BIT. This is likely to provide confidence to investors, said a source.
The new law is also aimed at improving India’s ranking in the enforcement of contracts.
India’s overall ranking in the World Bank’s ease of doing business report has improved to 63 from 142 in 2014, its ranking in the enforcement of contracts is at 163 out of 190.
The draft proposal also includes a plan to set up an investment tribunal in state high courts that will take up cases as a matter of priority.
“We are yet to evaluate what the risks of bringing such a law are and if it would do more harm than good,” said a source while adding that the discussions were at an early stage.
In a recent meeting in December, which was attended by officials from the ministries of external affairs and law, commerce, and banking and stock market regulator, all have been asked to submit their comments in writing, said the source, who also attended the meeting.