India-Israel bilateral investment pact comes into force

India and Israel's Bilateral Investment Agreement (BIA), signed in September 2025, officially entered into force on July 4, 2026, replacing the earlier inves...

What Happened

India and Israel's Bilateral Investment Agreement (BIA), signed in September 2025, officially entered into force on July 4, 2026, replacing the earlier investment treaty between the two countries.
The agreement provides strong investor protection mechanisms while preserving each government's right to regulate in the public interest — a key feature of India's contemporary investment treaty approach.
The BIA covers expropriation safeguards, national treatment, fund transfer rights, and a structured investor-state dispute settlement (ISDS) mechanism.
Under the ISDS provision, investors must first exhaust domestic legal remedies before initiating international arbitration — consistent with India's 2016 Model BIT approach.
The agreement is expected to catalyse the next phase of the bilateral relationship, including formal Free Trade Agreement (FTA) negotiations, for which a first round was conducted in February 2026.

Static Topic Bridges

Bilateral Investment Treaties (BITs) and India's 2016 Model BIT

A Bilateral Investment Treaty (BIT) is an agreement between two countries that establishes rules for investment flows, protecting investors from arbitrary host-country actions such as expropriation, discrimination, or denial of justice. India adopted a new Model BIT in 2016 after facing multiple adverse arbitration awards under older treaties signed in the 1990s; the new model prioritises regulatory autonomy alongside investor protection.

India's 2016 Model BIT requires investors to exhaust domestic remedies for at least five years before proceeding to international arbitration — a major departure from earlier models.
The Model BIT does not include a Most-Favoured-Nation (MFN) clause or a Fair and Equitable Treatment (FET) standard, both of which had been used against India in earlier arbitrations.
It introduces investor obligations — foreign investors must comply with domestic laws including environmental and social standards.
India had terminated over 60 older BITs between 2016 and 2019 and has been renegotiating them on the basis of the 2016 model.

Connection to this news: The India-Israel BIA follows the contours of the 2016 Model BIT — incorporating domestic-remedy-first ISDS and preserving policy flexibility — making it a template case of India's revised investment treaty strategy.

National Treatment and Non-Discrimination in Investment Law

National Treatment is a foundational principle in international trade and investment law, requiring a host country to treat foreign investors no less favourably than its own domestic investors in like circumstances. It is a standard provision in WTO agreements (GATT, GATS, TRIPS) and bilateral investment treaties.

National Treatment under the India-Israel BIA explicitly excludes rights over land and real estate — reflecting India's constitutional restrictions on land ownership by non-citizens.
The principle applies to post-establishment treatment (after the investment has been made), not necessarily to the admission/entry of the investment.
Expropriation — direct or indirect taking of an investor's property — must meet four tests to be lawful: public purpose, due process, non-discrimination, and prompt/adequate compensation.

Connection to this news: The BIA's National Treatment and expropriation provisions are the core investor protections that give foreign businesses confidence to invest across borders, directly addressing investor concerns about policy risk.

India-Israel Bilateral Relations: Strategic and Economic Dimensions

India recognised Israel's statehood in 1950 but established full diplomatic relations only in January 1992, under Prime Minister P.V. Narasimha Rao — a decision driven by post-Cold War strategic realignment and the Oslo Accords. Since 1992, the partnership has deepened across defence, agriculture, water technology, and trade.

Bilateral trade grew from approximately $200 million in 1992 to around $4–6 billion by 2024.
India is one of Israel's largest arms customers, accounting for approximately 34% of Israeli defence exports in recent years.
The India-Israel Industrial R&D and Innovation Fund (I4F) promotes joint technology research (2023–2027).
Agriculture cooperation includes shared expertise in drip irrigation, soil management, and horticulture — areas of direct relevance to India's water-stressed farming regions.
FTA negotiations were formally launched in February 2026 and aim to significantly expand bilateral trade flows.

Connection to this news: The BIA institutionalises the economic dimension of a relationship historically dominated by defence and technology cooperation, creating a legal foundation for expanded cross-border investment as FTA talks progress.

Key Facts & Data

BIA signed: September 2025 (during Israeli Finance Minister Bezalel Smotrich's visit to India)
BIA entered into force: July 4, 2026
India-Israel diplomatic relations established: January 1992 (under PM P.V. Narasimha Rao)
India's Model BIT adopted: 2016
Model BIT domestic remedy exhaustion requirement: minimum 5 years before international arbitration
First round of India-Israel FTA negotiations: February 23–26, 2026, New Delhi
Terms of Reference for FTA signed: November 2025
India is Israel's 7th-largest trade partner globally
Israel accounts for approximately 13% of India's total arms imports (2020–2024 period)
National Treatment exclusion: rights over land and real estate not covered