India-Israel Bilateral Investment Agreement: What It Means for Strategic Economic Ties -

In September 2025, India and Israel signed a fresh Bilateral Investment Agreement (BIA) , marking a milestone in their growing economic partnership. This new agreement replaces the earlier 1996 Bilateral Investment Treaty (BIT), which was terminated in 2017. Notably, Israel becomes the first OECD country to adopt India’s updated investment treaty model. The move reflects India’s strategic recalibration of its investment treaty framework, aiming to balance investor protection with regulatory sovereignty.

What Is a Bilateral Investment Agreement (BIA)?

A Bilateral Investment Agreement is a treaty between two nations that provides guarantees and protections to investors from one country investing in the other’s territory. Traditional BITs typically include provisions such as protection against expropriation without compensation, fair and equitable treatment, protection against discrimination, and dispute resolution mechanisms including investor-state dispute settlement (ISDS).

India has been updating its approach to BITs over time. Its old model, from 1993, was replaced by the New Model BIT in 2015. Since then, India has been negotiating new treaties using this model with countries like Uzbekistan (2024), the UAE (2024), and Kyrgyzstan (2025). The Israel BIA is part of this broader strategy.

Key Features of the India-Israel BIA

Some of the salient elements of this latest agreement:

* Investor Protection with Safeguards : Investors are protected against risks such as expropriation or nationalization of assets; however, any such action must come with fair and prompt compensation.

* Dispute Resolution : The agreement includes arbitration-based mechanisms to settle disputes. This provides a more stable and predictable legal environment for investors.

* Transparency and Predictability : India and Israel will commit to maintaining clear investment policies and regulations, reducing regulatory uncertainty. This helps build investor confidence.

* Definition of Investment & Good Faith Operation : The new model defines “investment” more precisely as enterprises that are constituted, organized, and operated in good faith under the host country’s laws.

* Exclusions : Certain matters are excluded from the scope of treaty obligations. These include state-procurement, taxation, subsidies, compulsory licensing, and national security concerns. These exclusions allow the host state room to regulate in certain sensitive domains.

* Exhaustion of Local Remedies : Before accessing the ISDS mechanism, investors must first exhaust local remedies for a minimum of five years. This is a new feature aimed at giving host states an opportunity to resolve disputes domestically.

Evolution of India-Israel Relations & Economic Ties.

India and Israel have cultivated their relationship steadily since diplomatic recognition and full ties were established. Though India recognized Israel in 1950, full diplomatic relations came only in 1992. Over time their collaboration has deepened not only in trade but in defense, technology, agriculture, water management, and R\&D.

Trade (excluding defense) between the two nations reached about **USD 6.53 billion** in FY 2023-24, with India enjoying a trade surplus in this non-defense trade. Innovation and joint R\&D initiatives such as the India-Israel Industrial R\&D and Innovation Fund (I4F) (2023-2027) further underscore growing interdependence in technology and value chains.

Significance & Expected Benefits

* Boost to Bilateral Investments: The agreement is expected to enhance inflows of investment by providing more legal certainty and risk mitigation. The current bilateral investment stock is about **USD 800 million**; the new BIA aims to expand this considerably.

* Greater Investor Confidence: Clearer definitions, stronger protections, and dispute resolution mechanisms will help attract more investors who often shy away from treaties with vague clauses or weak enforcement.

* Room for Regulation: The updated model places limits on treaty obligations, giving host governments more regulatory flexibility, especially in fields related to national security, public procurement, or taxation.

* Alignment with Global Trends: As many countries and blocs revisit their investment treaties to address issues like environmental protection, labor standards, and regulatory sovereignty, India’s updated BIT/BIA model is seen as more contemporary and balanced.

Challenges Ahead

Despite its promise, there are several challenges that India must navigate to make the BIA framework effective:

Ambiguity in Key Term : Even with newer models, terms like “fair and equitable treatment” or references to “customary international law” remain somewhat vague. These ambiguities are often the grounds for dispute.
Delay & Cost in Dispute Resolution: Exhaustion of local remedies for five years could delay resolution for investors and might deter some from relying on international arbitration.
MFN and FET Provisions: Exclusion or unclear inclusion of Most-Favoured-Nation (MFN) and Fair and Equitable Treatment (FET) can affect investor confidence, especially for those accustomed to these protections.
Enforcement & International Convention Membership: India’s position with respect to certain global arbitration / investor-state dispute bodies (like ICSID — the International Centre for Settlement of Investment Disputes) is relevant. Wider enforcement guarantees help investor trust.

Conclusion

The India-Israel BIA represents a significant turning point in India’s diplomacy and economic strategy. By being the first OECD country to sign on to India’s new BIT model, Israel breaks new ground while India signals its willingness to recalibrate the balance between investor protection and national regulatory autonomy.

For India, the key will be to implement these agreements transparently, strengthen domestic legal infrastructure, reduce ambiguity in treaty terms, and ensure that foreign investment promotes sustainable development. In doing so, India can use BIAs not just as tools for attracting capital, but as levers for deeper technology, innovation, and strategic partnerships.

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