India and Israel have built one of their closest strategic relationships in defense and security, yet bilateral investment has remained strikingly modest. As of 2024, the accumulated stock of mutual investment stood at approximately $360 million — far below what might be expected from the political importance and technological potential of the partnership. The new bilateral investment treaty, which entered into force on July 4, 2026, is an attempt to narrow that gap. But the question isn't whether the treaty exists. It's whether it can address the structural obstacles that have kept two strategic allies from becoming genuine economic partners.
Signed in New Delhi less than one year ago in September 2025, the treaty restores a legal framework that had been missing since India terminated the previous agreement 9 years ago in 2017. It offers investors several protections: national treatment in comparable circumstances, safeguards against arbitrary conduct, protection from expropriation without compensation, provisions governing the transfer of investment-related funds, and access to international arbitration under specified conditions. It applies to qualifying existing investments as well as to new investments made after its entry into force.
The Gap Between Strategy and Investment
The agreement reflects a shared recognition that strategic relations can't rest indefinitely on defense procurement and diplomatic goodwill alone. If the partnership is to mature, it must generate sustained investment, joint production, research cooperation, and deeper industrial links. Israeli firms frequently view India as a market of immense potential but also one of considerable complexity. The regulatory environment can be difficult to navigate, decision-making is often slow, and implementation may vary across ministries, states, and sectors. In defense and dual-use industries, these challenges are especially pronounced because commercial, technological, regulatory, and national security considerations are closely intertwined.
The treaty reduces some forms of political and legal risk, but it doesn't remove these structural obstacles. It explicitly preserves each state's right to regulate in pursuit of legitimate public objectives. It also excludes or limits key areas, including taxation, government procurement, subsidies, and certain security-related measures. For defense companies, this distinction is essential. The agreement doesn't open India's procurement system, override local-content requirements, or eliminate national-security screening.
Technology Transfer and the Localization Dilemma
Technology transfer is likely to remain the most persistent challenge. India is no longer interested solely in purchasing finished systems. Its policies increasingly emphasize local manufacturing, co-development, maintenance, training, supply-chain integration, and the creation of domestic technological capabilities. For Israeli firms, this creates a genuine strategic dilemma. The question isn't whether India will continue to demand localization and technology transfer — it will. The real question is whether the size and long-term value of the opportunity justify the degree of adaptation, investment, and technological exposure required.
Each company must therefore undertake a serious cost-benefit assessment. Which technologies can be shared, and which must remain protected? Is the Indian market large enough to justify local production? Can a reliable Indian partner be identified? Is the company prepared to maintain a presence over several years rather than pursue a single transaction?
The cultural gap between Israeli and Indian business practices is real, but it shouldn't be understood simply as an obstacle. In India, personal trust, continuity, and long-term relationships are part of the business infrastructure itself. Israeli companies, accustomed to speed, informality, and rapid results, sometimes find this demanding. Yet firms that invest in sustained relationships, local knowledge, and institutional patience are far more likely to succeed.
Where the Treaty May Matter Most
Although corruption and administrative opacity remain concerns, India has introduced important reforms since 2014, particularly through digitization, formalization, and greater transparency in government procedures. Progress remains uneven, and experiences differ across states and sectors. Nevertheless, India's continued ability to attract substantial foreign investment suggests that international firms increasingly regard these difficulties as risks to be managed rather than reasons to stay away.
Semiconductors illustrate where the treaty may have its greatest practical value: sectors in which India's strategic need is urgent and Israeli expertise is difficult to replace. India views semiconductor capabilities as essential to economic security, defense modernization, digital infrastructure, and technological autonomy. It therefore has a strong incentive to create more favorable conditions for partners capable of addressing specific capability gaps.
Israel has relevant strengths in chip design, sensors, secure hardware, advanced testing, artificial intelligence applications, and specialized dual-use technologies. But the lesson extends beyond semiconductors. Israeli firms shouldn't approach India simply as a large market for existing products. They should begin with a detailed mapping of Indian priorities and identify areas in which India has a pressing strategic need and Israel offers a distinctive advantage.
Why This Matters:
The new treaty is best understood as an enabling framework, not a shortcut. It can't substitute for market intelligence, reliable local partners, regulatory preparation, or sustained commitment. What it can do is reduce uncertainty and signal that both governments recognize the need to translate strategic affinity into durable investment. The treaty will not determine the future of India-Israel investment, but it removes one important excuse for why a strong strategic relationship has not yet produced a comparable economic partnership. For workers in both countries — Indian engineers seeking advanced technology jobs, Israeli firms seeking scale and market access — the question is whether political alignment can finally generate the kind of industrial cooperation that creates employment, builds capabilities, and anchors the relationship in shared prosperity rather than shared threats. The treaty offers the legal scaffolding. Whether it leads to factories, research labs, and joint ventures depends on decisions that companies, not governments, must now make.