Bridging the Investment Divide: Learnings for Indian Investment Law from Saudi Arabia’s Investment Framework

About the Author: Inika Dular is an undergraduate student at the Rajiv Gandhi National University of Law, India.

Image by Mathieu Stern available here

Introduction

Investment laws are the backbone of economic growth. They enable countries to attract foreign direct investment (FDI) and foster domestic enterprise. India emerged as the fifth-best investment destination for CEOs worldwide in PwC India’s 28th Annual Global CEO Survey at Davos 2025. Sanjeev Krishan, Chairperson of PwC India, believes that CEOs still hold certain reservations about investing in India due to “regulatory complexity.” India’s investment framework has often been termed inconsistent and self-contradictory. Challenges lie in its dispute resolution mechanisms, incentives, and taxation policies, all of which are frequently misaligned with international legal principles. In contrast, Saudi Arabia’s new investment laws, which replaced the Foreign Investment Law of 2000 in February, align with its Vision 2030 goals of uplifting its economy, society, and culture, and reflect a forward-thinking approach. This article explores key lessons India can take from Saudi Arabia’s new investment laws and the way forward for the nation’s FDI prospects, particularly in light of international investment law, Bilateral Investment Treaties (BITs), and global dispute resolution mechanisms.

Learnings for Indian Investment Law from Saudi Arabia’s

Saudi Arabia’s new investment laws exemplify an investor-centric approach consistent with its national economic goals. By analysing its key provisions, several areas emerge where India’s legal framework could benefit from reform.

Dispute Resolution Challenges

Indian investment law can draw significant lessons from Saudi Arabia’s innovative dispute resolution mechanisms. The Kingdom has established specialised courts under the International Centre for Settlement of Investment Disputes (ICSID). ICSID’s investor-state dispute settlement (ISDS) framework provides a neutral, internationally recognised mechanism for resolving investment disputes. This enhances legal certainty by ensuring binding arbitration, rather than relying on domestic courts that may be perceived as biased or inefficient by foreign investors. Saudi Arabia has made remarkable efforts towards achieving a seamless dispute resolution framework, as reflected in its recent agreement with ICSID declaring the Saudi Centre for Commercial Arbitration as its exclusive centre. The framework promotes adherence to principles such as Fair and Equitable Treatment (FET) and protection from expropriation, both of which are essential for maintaining investor confidence. These provisions reduce FDI risks and promote a predictable business environment. Additionally, the new Saudi law introduces investment-related Alternative Dispute Resolution (ADR) mechanisms under Article 10, offering investors flexibility and business-friendly avenues for resolving disputes.

In contrast, investment disputes in India are often routed through overburdened civil courts, resulting in delays and higher costs. For example, the World Bank’s 2024 Ease of Doing Business rankings estimate India’s average commercial dispute resolution time at 1,445 days, compared to Saudi Arabia’s 575 days. Despite India’s enactment of the Commercial Courts Act (2015), its impact remains limited. Moreover, India’s withdrawal from ISDS in new bilateral investment treaties reduces investor protection, making the country less attractive to foreign investors. India is not a signatory to the ICSID Convention and has moved from ISDS towards a 2015-approved BIT model. While India's 2015 Model BIT retains ISDS, it requires investors to exhaust local remedies for 5 years and narrows the definition of protected investments to exclude portfolio investments, making international arbitration much harder to access compared to traditional BITs.

To make dispute resolution more effective, India should strive to align its international arbitration framework with the UNCITRAL Model Law on International Commercial Arbitration, which provides a uniform legal structure for fair and efficient arbitration. The model law strengthens investor confidence by ensuring procedural transparency, party autonomy, and enforceability of arbitral awards under the New York Convention, to which India is a signatory. This would help India balance its obligations under BITs while also reducing the threat of protracted litigation.

Taxation Challenges and Investor Confidence

India should also consider exploring tax policy reforms in line with recent developments in Saudi Arabia’s investment law. Saudi Arabia has aligned its tax policies with OECD’s international tax standards, particularly the Base Erosion and Profit Shifting (BEPS) framework, which aims to prevent tax avoidance by multinational enterprises and uphold global investment protection principles under BITs. Additionally, the Kingdom’s pro-investor, incentivised tax regime tackles bureaucratic hurdles and offers long-term stability guarantees. Its new Investment Law includes tax exemptions for up to 30 years in some sectors. These stable taxation policies contribute to investor confidence and predictability in Saudi Arabia.

India, in contrast, has had a history of retrospective taxation, which must be addressed to assure investors of a stable regulatory environment. Retrospective taxation is inconsistent with the FET standard under BITs. This standard requires host states to maintain legal stability and predictability. However, retrospective tax amendments, like the Finance Act 2012, discourage foreign investors and lead to costly international arbitration cases against India. The Act empowered the government to impose a capital gains tax retrospectively on foreign investors by clarifying terms in the Income Tax Act 1961. This led to major investment disputes such as Vodafone International Holdings B.V. v. Union of India (2012) – later also argued before the Permanent Court of Arbitration at the Hague – and Cairn Energy Plc v. Government of India (2020), both of which were adjudicated against India in international arbitration. These outcomes damaged investor confidence because of uncertainty and unpredictability.

 Although the Taxation Laws (Amendment) Act 2021, which repealed the retrospective tax on indirect asset transfers, provided some relief, further reforms are essential. India should consider implementing Saudi-style tax stability agreements and binding advance rulings to prevent abrupt policy shifts, aligning with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). This would help attract long-term FDI while reducing legal disputes and enhancing clarity in tax administration.

Bureaucratic Impediments

India’s investment regulatory framework is governed by the Foreign Exchange Management Act (FEMA) 1999 and sector-specific policies. Bureaucratic delays and inconsistent legal interpretations continue to undermine the effectiveness of India’s FDI framework. The prevalence of bureaucratic delays and inconsistent legal interpretations has marred the whole FDI process. Conversely, Saudi Arabia’s single-window clearances and digital platforms boost efficiency in attracting FDI by streamlining regulatory processes. Following a centralized approach for approval, licensing, and regulatory compliance, the Kingdom’s Invest Saudi platform has contributed to a reduction in processing times and is targeting a twentyfold increase in FDI by 2030. In its Vision 2030 program, Saudi Arabia has introduced several streamlined investment procedures to facilitate the establishment and operation of businesses.

Meanwhile, India’s current system requires investors to navigate multiple authorities, including the Reserve Bank of India and the Department for Promotion of Industry and Internal Trade, leading to inefficiencies. While the automatic route for FDI avoids some approvals, it is not sufficient. India should build on its Digital India program to develop a comprehensive single-window approach that enhances predictability, transparency, and regulatory speed, fostering a more attractive investment climate.

Unequal Treatment

Lastly, India imposes sectoral caps and restrictive conditions on FDI, creating a fragmented and protectionist environment. For instance, India’s 2020 Consolidated FDI Policy restricts FDI in multi-brand retail to 51%, subject to government approval and mandatory 30% local sourcing requirements. Such regulatory hindrances and deliberate complexities have deterred global players such as Walmart and Carrefour from expanding in India. India’s full investment potential and enhanced global competitiveness can be achieved by adopting investor-friendly policies, such as reducing sectoral restrictions and promoting regulatory predictability, to foster long-term economic growth.

Saudi Arabia’s new law guarantees equal treatment for domestic and foreign investors. Additionally, the law aims to eliminate excessive regulatory burdens to facilitate seamless foreign participation. The Kingdom has also relaxed and liberalised its Negative List (Annex (B)) over the years to attract more investment. Negative List refers to a document outlining specific industries where foreign investment is restricted, prohibited, or subject to special regulations. India’s restrictions on foreign investments warrant reconsideration in light of the WTO’s Agreement on Trade-Related Investment Measures, which prohibits investment measures that restrict trade, such as local content requirements and trade-balancing measures.

The Way Forward for India

In light of PwC India’s survey at Davos 2025, now is the time for transformation. Meaningful reforms can help bridge the gaps between India’s and Saudi Arabia’s investment regimes and unlock India’s full economic potential. Saudi Arabian investment law demonstrates how a strategic framework can instill investor confidence, legal certainty, and efficiency in regulatory processes. India should consider adopting a similar approach to ensure its competitiveness as an investment hub.

The road ahead calls for a holistic approach; India should implement regulatory reforms by employing a single-window clearance and digitisation system, thereby accelerating approvals and eliminating bureaucratic hurdles. Equally important is the need for reform in the taxation system, along with the implementation of stability agreements and advance ruling systems to prevent arbitrary changes. Sector-specific incentives in special economic zones should be revived to attract high-end investments in emerging industries. Alongside investment dispute resolution, investor confidence will be strengthened through dedicated commercial investment courts and effective enforcement of arbitration awards. Finally, equal treatment of domestic and foreign investors will position India as a fair and transparent investment destination. Aligning with global best practices will empower India to emerge as a preferred and resilient destination for global capital.