The new bilateral investment treaty between India and Israel, which entered into force on July 4, 2026, aims to bridge a significant gap in economic ties. This comes despite a robust strategic relationship already established in defense, technology, and security. The agreement restores a critical legal framework, absent since India terminated the previous accord 9 years ago in 2017.
As of 2024, the accumulated stock of mutual investment between the two nations stood at approximately $360 million. This figure remains strikingly modest, especially considering the political importance and technological potential inherent in their partnership. The treaty, signed in New Delhi less than one year ago in September 2025, provides investors with crucial protections.
These safeguards include national treatment in comparable circumstances and protection against arbitrary or abusive conduct. It also protects against expropriation without compensation and governs the transfer of investment-related funds. Access to international arbitration under specified conditions is also included, applying to both qualifying existing investments and new investments made after its entry into force.
Deepening Strategic Ties
Both nations recognize that strategic relations cannot rest indefinitely on defense procurement and diplomatic goodwill alone. The partnership must foster sustained investment, joint production, research cooperation, and deeper industrial links to mature effectively. Israeli firms often perceive India as a market with immense potential, yet also one of considerable complexity.
The regulatory environment can be challenging to navigate. Decision-making processes are frequently slow, and implementation may vary significantly across different ministries, states, and sectors. These challenges are particularly acute within defense and dual-use industries. Here, commercial, technological, regulatory, and national security considerations are closely intertwined.
The treaty mitigates some political and legal risks, but it does not eliminate structural obstacles. It explicitly preserves each state’s right to regulate in pursuit of legitimate public objectives. Key areas like taxation, government procurement, subsidies, and certain security-related measures are either excluded or limited. This distinction is vital for defense companies.
Defense Technology Imperative
The agreement does not open India’s procurement system, override local-content requirements, or eliminate national-security screening. Technology transfer will likely remain the most persistent challenge. India no longer seeks only finished systems; its policies increasingly prioritize local manufacturing, co-development, maintenance, training, supply-chain integration, and the creation of domestic technological capabilities.
This presents a genuine strategic dilemma for Israeli firms. The question is not 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 required degree of adaptation, investment, and technological exposure. Each company must conduct a serious cost-benefit assessment.
They must determine which technologies can be shared and which must remain protected. They must also assess if the Indian market is large enough to justify local production and if a reliable Indian partner can be identified. Companies must be prepared to maintain a presence over several years, rather than pursuing only single transactions.
Securing Technological Autonomy
The cultural gap between Israeli and Indian business practices is real. However, it should not be seen merely as an obstacle. In India, personal trust, continuity, and long-term relationships form 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.
India has introduced important reforms since 2014, particularly through digitization, formalization, and greater transparency in government procedures. This is despite ongoing concerns about corruption and administrative opacity. Progress remains uneven, and experiences differ across states and sectors. Nevertheless, India’s continued ability to attract substantial foreign investment suggests international firms increasingly manage these difficulties as risks, rather than reasons to avoid the market.
Semiconductors illustrate where the treaty holds its greatest practical value. These are sectors where India’s strategic need is urgent and Israeli expertise is difficult to replace. India views semiconductor capabilities as essential for economic security, defense modernization, digital infrastructure, and technological autonomy. It has a strong incentive to create favorable conditions for partners addressing specific capability gaps.
Israel possesses relevant strengths in chip design, sensors, secure hardware, advanced testing, artificial intelligence applications, and specialized dual-use technologies. The lesson extends beyond semiconductors. Israeli firms should not approach India simply as a large market for existing products. They should begin with a detailed mapping of Indian priorities. They must identify areas where India has a pressing strategic need and Israel offers a distinctive advantage. The new treaty functions as an enabling framework, not a shortcut. It cannot replace 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 the lack of a comparable economic partnership.