India-Israel investment pact comes into effect

New Delhi: A bilateral investment agreement between India and Israel came into force on Saturday, promising faster dispute resolution and stronger investor protection while preserving sovereign policy-making space. It's expected to boost investment flows between the two countries from the current level of less than $1 billion.

Signed in September 2025, the agreement allows investors at least three years to exhaust domestic legal remedies for dispute settlement before initiating international arbitration. While India's 2016 model bilateral investment treaty text stipulates a five-year local remedy period, the country has relaxed this provision for close and strategic partners, such as the UAE and now Israel. The agreement text was made public on Saturday.

The requirement may be waived if both parties agree that domestic remedies are unlikely to provide effective relief. In state-to-state disputes, consultation and negotiation will be the first recourse.

Investors must comply with the laws of the host country and are prohibited from bribing public officials. Third-party funding of the investor in case of a dispute is also barred.

The agreement comes into force as Israel remains engaged in conflict with Iran, which has disrupted supply chains and pushed up global oil prices, straining the external balances of India and other net energy importers and increasing their need for foreign capital.

It covers "investment" that includes enterprises, shares, bonds, loans, intellectual property rights, patents, trademarks, properties and long-term rights to natural resources.

The agreement preserves sovereign policy space by excluding taxation, subsidies, government procurement and certain services delivered in the exercise of governmental authority from its scope. It also explicitly protects each country's right to regulate in the public interest.

It is India's first bilateral investment treaty with a member of the Organisation for Economic Co-operation and Development (OECD) since the country adopted its new model bilateral investment treaty text in 2016. It replaces the 1996 agreement, which India terminated in 2017.

Between April 2000 and March 2026, India received $371 million in foreign direct investment from Israel, accounting for 0.05% of total FDI inflows during the period. Indian investments in Israel were of a similar magnitude.

The agreement also provides safeguards against expropriation, ensures transparency and facilitates the transfer of investment-related funds and compensation for losses. 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", the finance ministry said on Saturday.