Govt moves to stop damage claims on policy changes

NEW DELHI: While the government is raising the foreign direct investment (FDI) caps and plans to ease some restrictions of the Press Note 18, it is at the same time also putting in place safeguards to protect local interests.

The finance ministry is working on provisions to make it tough for multinational corporations and foreign investors to challenge changes in government policy at international arbitration courts.

It is introducing fresh clauses in bilateral treaties governing FDI inflows to prevent disputes caused by policy changes.

The new clauses limit the rights of international arbitration tribunals to adjudicate in such cases.

And, according to sources, once they come into effect, foreign investors will not be able to seek damages in case of business losses arising out of policy changes.

Changes in policies often cause lasting damage to businesses. And global investors in major FDI destinations like China and Argentina are slapping arbitrations on the countries, seeking compensations running into millions of dollars.

For instance, it is estimated that the value of investments under dispute in Argentina is four times the country’s GDP.

Due to this tendency, government policies across the world are increasingly becoming hostage to MNCs and foreign investors, sources added.

The move may go down well with Left parties that have been vocal in their opposition to a liberal FDI regime, especially in certain important sectors.

The right to challenge discrimination against foreign investors vis-à-vis local investors is also being denied through this framework.

The finance ministry has prepared a new draft on the clause against expropriation to prevent investors from seeking such compensations.

The clause is being introduced in all bilateral treaties that are currently being renegotiated. And India is renegotiating treaties with a number of countries from South Asia, Latin America and the European Union.

“However, it will not be a blanket cover as foreign investors also have to be made to feel comfortable about investing in India,� said a source.

The need for such preventive measures is being felt as international arbitration tribunals are becoming increasingly liberal in awarding damages to affected parties.