A significant bilateral investment agreement between India and Israel has officially come into force on Saturday, July 5, 2026. This landmark pact is poised to substantially increase investment flows between the two nations, which currently stand at less than $1 billion. The agreement introduces mechanisms for expedited dispute resolution and strengthened investor protection, while carefully preserving the sovereign policy-making autonomy of both countries.
Signed in September 2025, the agreement mandates that investors must first pursue domestic legal remedies for a minimum of three years before initiating international arbitration. This provision offers greater flexibility compared to India’s 2016 model bilateral investment treaty, which typically required a five-year local remedy period. Such flexibility is now extended to key strategic partners like Israel. The full text of the agreement was made public on Saturday. Both parties can mutually agree to waive this domestic remedy requirement if it’s unlikely to offer effective relief. In disputes between the states, initial recourse will be through consultation and negotiation.
A key aspect of the agreement requires investors to adhere to the host country’s laws and prohibits bribery of public officials. Furthermore, third-party funding for investors involved in disputes is explicitly barred. The pact’s implementation occurs at a time when Israel’s ongoing conflict with Iran has led to supply chain disruptions and increased global oil prices, impacting the external balances of net energy importers like India and heightening their need for foreign capital.
The scope of what constitutes an “investment” under this agreement is broad, covering enterprises, shares, bonds, loans, intellectual property rights, patents, trademarks, property, and long-term rights to natural resources. Significantly, the pact safeguards each nation’s ability to regulate for public interest by excluding areas such as taxation, subsidies, government procurement, and certain services provided in the exercise of governmental authority from its purview. It also explicitly upholds the right of each country to regulate in the public interest.
This development marks India’s first bilateral investment treaty with a member of the Organisation for Economic Co-operation and Development (OECD) since India adopted its new model bilateral investment treaty text in 2016. It effectively replaces a previous agreement from 1996, which India had terminated in 2017. Historically, from April 2000 to March 2026, India received $371 million in foreign direct investment from Israel, representing a modest 0.05% of its total FDI inflows during that period. Indian investments in Israel have been of a comparable magnitude. The Ministry of Finance has emphasized that the agreement is “robust in protection of investment and investor with respect to their investments while being flexible enough to retain sovereign policy space in line with legitimate public policy objectives.” Additional safeguards are included against expropriation, ensuring transparency, and facilitating the transfer of investment-related funds and compensation for losses.
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