Challenges of India’s Investment in Bangladesh

Why in news?

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

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.

Need – International 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.

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.

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.

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.