A landmark pact promises to deepen economic ties, raising questions about its regional impact.
India and Israel signed a bilateral agreement on Monday, September 8, 2025, in New Delhi to promote and protect investments, fostering economic cooperation. Signed by Finance Ministers Nirmala Sitharaman and Bezalel Smotrich, the India Israel bilateral agreement aims to enhance cross-border trade, currently valued at USD 3.9 billion annually. The treaty replaces a 1996 pact, aligning with India’s updated investment model.
Why it Matters in South Asia
The India Israel bilateral agreement strengthens economic ties in a region where India’s market scale and Israel’s technological prowess create synergy. This pact could influence trade dynamics in South Asia, encouraging investment flows and potentially inspiring similar agreements in neighbouring countries like Bangladesh and Sri Lanka, boosting regional economic stability.
India Israel Bilateral Agreement: Details of the Pact
The India Israel bilateral agreement, formally a Bilateral Investment Treaty (BIT), was inked during Israeli Finance Minister Bezalel Smotrich’s three-day visit to India, from Sunday, September 7, to Tuesday, September 9, 2025. According to the Ministry of Finance, the agreement provides “greater certainty and protection for investors” through measures like dispute resolution, transparency, and safeguards against expropriation. Israel is the first OECD member to adopt India’s new treaty model, marking a significant milestone.
The India Israel bilateral investment focus aims to boost mutual investments, currently totalling USD 800 million. India’s outward direct investment to Israel from April 2000 to April 2025 stands at USD 443 million, while Israel’s foreign direct investment in India from April 2000 to March 2025 is USD 334.2 million. The treaty ensures a stable environment for businesses, encouraging sectors like fintech, infrastructure, and defence.
Smotrich met Indian Commerce Minister Piyush Goyal and Housing Minister Manohar Lal Khattar, visiting Mumbai and GIFT City in Gandhinagar to explore financial collaborations. According to the Israeli Ministry of Finance, the pact will “contribute to enhanced trade and investment flows,” leveraging India’s market potential and Israel’s innovation ecosystem.
India Israel Bilateral Investment: Economic Implications
Why is the India Israel bilateral investment significant? The treaty lays the groundwork for a potential Free Trade Agreement (FTA), with negotiations ongoing since 2024. Bilateral trade reached USD 3.9 billion in 2024, with Indian exports (pearls, engineering goods, rice) at USD 2.15 billion and imports (semi-precious stones, electronics) at USD 1.61 billion. The India Israel bilateral investment treaty could push these figures higher by reducing risks for investors.
The agreement includes provisions for fair treatment, dispute arbitration, and capital transfer freedoms, replacing the 1996 BIT terminated in 2017. India’s exports to Israel, including electronics and telecom instruments, are expected to grow, while Israel’s expertise in high-tech and agro-chemicals could see increased inflows.
Strategic Context of India Israel Bilateral Agreement
The India Israel bilateral agreement aligns with deepening diplomatic ties since 1992, when relations were established. Bilateral trade grew from USD 200 million to USD 10.77 billion (excluding defence) in FY 2022-23. This pact, signed amid global economic uncertainties, positions both nations as strategic partners. Israel’s fourth ministerial visit to India in 2025, following trips by Tourism, Economy, and Agriculture Ministers, underscores this commitment.
India’s GIFT City, visited by Smotrich, offers tax incentives and world-class infrastructure, attracting Israeli financial institutions. The India Israel bilateral investment treaty could also enhance defence exports, a key area of cooperation, though exact figures remain undisclosed.
Background
India and Israel have progressed rapidly since establishing diplomatic ties. The 1996 BIT, terminated in 2017, was part of India’s policy overhaul to modernise investment frameworks. The new India Israel bilateral agreement reflects India’s shift towards investor-friendly policies while balancing national interests. Trade diversification beyond diamonds, which dominated early exchanges, now includes high-tech, agriculture, and infrastructure. Geopolitical alignment, including shared concerns over regional security, further strengthens this partnership.
What’s Next for India Israel Bilateral Agreement
The India Israel bilateral agreement sets the stage for FTA talks, potentially concluding by mid-2026. Increased investments in fintech and infrastructure are expected, with GIFT City as a hub. However, global trade tensions, such as US tariffs, could pose challenges. The India Israel bilateral agreement will likely drive economic collaboration, shaping South Asia’s trade landscape.
Published in SouthAsianDesk, September 9th, 2025
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