India Regulatory Brief: New Bilateral Investment Treaty, Government Moves to Shorten Environmental Clearance Process

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New Bilateral Investment Treaty to Prevent Arbitration in Certain Disputes

The Indian Finance Ministry has drafted a new bilateral investment protection treaty that will keep tax issues and the issuance of compulsory licenses for intellectual property rights. The new Bilateral Investment Treaty (BIT) is designed to protect foreign investments from unfair treatment and expropriation. However, preventing arbitration calls into doubt just how much additional investor protection will actually be provided.

Cairn Energy Plc. and Vodafone have recently sought arbitration on their tax disputes, so the new treaty changes may be a way for the government to gain leverage in tax disputes by handling them in local courts.

US Federal Aviation Authority (FAA) Upgrades Indian Aviation Safety Rating

Indian airlines like Air India and Jet Airways could increase the number of flights to the U.S. and other parts of the world after the FAA increased India’s aviation safety rating to Category 1 – the highest rating. In January 2014, the FAA downgraded India’s rating to Category 2 due to lack of safety oversight, but the Indian industry has since made improvements by recruiting more flight operation inspectors and streamlining some safety procedures.

Air travel in India has grown rapidly to both domestic and international destinations, but the biggest beneficiaries will be Air India and Jet Airways because they run the majority of international routes and can now form codeshare agreements with airlines in the U.S.

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New Municipal Bond Rules to Make Infrastructure Funding Easier

The government has approved new rules that will make it easier for local governments to obtain funding for infrastructure projects. Under the new rules issued by the Securities and Exchange Board of India (SEBI), a corporation or municipality can now issue revenue bonds that can be publicly traded. Previously, municipal bonds were not tradable and available only to institutional investors.

SEBI has also announced new disclosure standards to improve the transparency of these investments. In order to issue municipal bonds, a corporation or municipality will need to have an investment grade credit rating and must contribute at least 20 percent of the project cost. In addition, municipal bond issuers must not have defaulted on a security or a loan in the previous year. These two measures should help prevent municipal bodies with weak corporate governance from spoiling the initiative.


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