INDIA has triggered the escape clause on dozens of bilateral investment treaties, aiming to renegotiate toward securing better protection from foreign litigation.

    The notifications, issued earlier this year, effectively let governments know they have 12 months to broker new treaties before the old ones expire. The changes India seeks could make it harder for foreign investors to legally challenge government decisions that negatively affect their businesses in India.

    But observers say the move could potentially backfire by spooking investors and ultimately jeopardizing Prime Minister Narendra Modi’s top priority — bringing in new business from abroad.

    Already some have voiced concern. In a letter to India’s commerce and finance ministers, the European commissioner for trade warned that India’s notifying “a significant number” of European Union nations could “have serious consequences” if Brussels cannot negotiate a replacement by next April.

    “It would create a gap in investment protection and consequently discourage EU enterprises from further investing in India,” Commissioner Cecilia Malmstrom said in the letter, dated May 25. Some investors “may perceive the investment climate as deteriorating,” while some may be unable to secure financing without treaty protections in place.

    “Such an outcome would run contrary to the efforts of attracting more investment to India,” the letter said. “I truly hope that India will not opt for such a radical policy shift with regard to investment from the EU.”

    Investment protection treaties have long been considered a prerequisite to doing business abroad. More than 3,400 such treaties have been brokered worldwide since the first U.S. investment treaties in the 1980s, according to the U.N. Conference on Trade and Development. These treaties generally lay out rules protecting foreign investment and assets. They codify how disputes should be handled, and often guarantee that a government will offer investors the best possible deal.

    India may have surprised its investment partners in seeking to revise business relationships, but it is not the first to do so — and it is not alone.

    Since 2012, according to UNCTAD, at least 60 countries have begun revising investment agreements, including South Africa, Brazil and Indonesia — all large, developing economies like India.

    “Foreign investors are always coming from advanced economies, so they already have the upper hand,” said economist and trade expert Biswajit Dhar, a professor at Jawaharlal Nehru University in New Delhi. “The countries that need more investment are the ones worried about giving too much away.”

    The trend among developing countries stems from a growing feeling that investment treaties, as initially designed by Western nations, give too much protection to investors without safeguarding a country’s ability to manage policy or regulations. That puts countries like India — still working out how to exploit natural resources or farm out telecom licenses — at a disadvantage in working out their policies, analysts say.

    Failing to negotiate replacements before old treaties expire wouldn’t necessarily affect all business. Existing investments would be covered by the old treaty for a period of about 10-15 years.

    But new investments would not be protected, and for a job-hungry nation like India, that could be a problem.

    India has been aggressively courting foreign investment and manufacturing to boost its economy. Since taking office in 2014, Prime Minister Modi has spent much of his time visiting foreign capitals and touting his “Make in India” campaign showcasing the country as a manufacturing destination — with its large labor force, young population and investor-friendly tax regimes.

    Yet, India remains at the low end of the World Bank’s ease of doing business ranking, currently placing 130th out of 189 countries surveyed. While foreign investment shot up to more than US$44 billion in 2015 — a 65 percent jump from when Modi took office — the manufacturing drive so far has had lackluster results. The sector accounts for about 15 percent of India’s gross domestic product, while employing about 12 percent of the work force.

    India entered into its first bilateral investment treaties as it was liberalizing its markets and courting foreign investment in the 1990s. Its first bilateral investment treaty, with Britain, went into effect in 1995, and was followed by more than 80 others.

    The idea for renegotiating quickly took hold about five years ago, as it was hit by a series of lawsuits. In 2011, India lost the first case in international arbitration to Australia’s White Industries, a manufacturer of metal components that argued that the cancellation of a contract with Coal India violated the terms of Australia’s 2000 bilateral investment treaty with India. (SD-Agencies)