India-Israel Bilateral Investment Agreement (BIA)

Syllabus: GS2/ IR

Context

• The Bilateral Investment Agreement (BIA) between India and Israel signed in September 2025, enters into force with effect from 4 July 2026.

About

• Israel has become the first OECD (Organisation for Economic Co-operation and Development) member state to sign an investment pact under India’s new model treaty framework.
  • The BIA replaces the earlier investment treaty signed in 1996, which was terminated in 2017 as part of India’s policy overhaul on such agreements. 
  • The Agreement will increase bilateral investments, which presently stands at a total of USD 800 million.

Key Provisions of the Agreement

• Definition and Scope of Investment: The agreement defines an investment as one that complies with the host country’s laws and possesses characteristics such as commitment of capital, expectation of profit, and assumption of risk.
  • It limits treaty protection to investments made in accordance with domestic laws and excludes portfolio investments and speculative assets from the definition.
• Right to Regulate: The BIA reaffirms the sovereign right of both countries to regulate investments in pursuit of legitimate policy objectives, including public health, environmental protection, taxation and national security.
  • It also contains provisions preventing treaty shopping by denying treaty benefits to shell companies or investors that restructure solely to gain access to the agreement’s dispute resolution mechanism.
• Taxation Provisions: The agreement contains a comprehensive tax carve-out, limiting the scope for investors to challenge tax measures through international arbitration. Except in cases involving allegations of expropriation, taxation measures are generally excluded from the treaty’s dispute settlement mechanism.
  • The treaty also requires investors to comply with all applicable tax laws, regulations and administrative guidelines of the host country.
• On dispute settlement, investors must first seek to resolve disputes through consultations and are required to exhaust domestic legal remedies before initiating international arbitration.
  • International arbitration can be initiated only after the domestic proceedings have concluded or after five years have elapsed, whichever is earlier. 
• National Security Exception: The treaty includes a strong essential security exception, under which either government may take measures it considers necessary to protect its national security interests.
  • Such decisions are expressly made non-justiciable, meaning arbitral tribunals cannot review a country’s decision to invoke the security exception, even in compensation claims.

India and Israel Bilateral Relations

• Bilateral Relations: India announced its recognition of Israel in 1950. Regular embassies opened in 1992 when full diplomatic relations were established between the two countries.
  • In 2022-23, the two countries jointly celebrated 30 years of the elevation of bilateral ties to full diplomatic ties.
• Defense & Security: Israel has been a key supplier of advanced technology from AWACS (Airborne Warning and Control System) radars and drones to missile and surveillance systems making it one of India’s largest defense suppliers.
• Economic Relations: In FY 2023-24 and FY 2024-25 the bilateral trade (excluding defense) was US$ 6.53 billion and US$3.75 billion respectively.
  • In 2017, both sides signed and exchanged seven MoUs on cooperation in the areas of innovation, technology, water, agriculture, and space & science. 
  • A US$ 40 million India-Israel Industrial R&D and Technological Innovation Fund (I4F) for joint projects was also set up.
• Multilateral Cooperation: Both are active members of the I2U2 group (India, Israel, USA, UAE), focusing on economic and space collaboration with projects like food parks and space-based environmental tools.

Significance for India

• Defence & security: Israel is a reliable partner for critical technologies for India and can be instrumental in India’s Self Reliance and Make in India.
• Agriculture & water: Israel is known for its model of innovation, water conservation, and high-yield farming, India can adopt these technologies with collaboration.
• Geopolitics: It is an important strategic partner for India in West Asia that complements India’s Act West policy.

Way Ahead

• The BIA is a landmark step towards strengthening bilateral economic relations and ensuring a secure and predictable investment climate.
• It is expected to contribute to increased cross-border investment activity and further deepen the economic partnership between India and Israel.

Source: PIB, IE, IEmb