New Delhi, Sep 8 (PTI) India has cut down the local remedies exhaustion period for Israeli investors to three years from the earlier five years under the Bilateral Investment Agreement (BIA) signed on Monday between the two countries.

A similar provision was included in India's investment pact with the UAE, which came into effect last year.

The India-Israel BIA, aimed at providing comfort to investors of both countries, also includes portfolio investments in a deviation from such treaties in the past.

Local remedies exhaustion means that investors must first try to resolve their disputes using the legal system of the host country before they can take the matter to international arbitration. Normally, India keeps a five-year period for this.

An official said that the India-Israel BIA was signed on the lines of the India-UAE bilateral investment treaty.

Israel is the first OECD (Organisation for Economic Co-operation and Development) member with which India has inked this agreement.

The pact includes provisions to safeguard investments against expropriation, ensure transparency, and enable smooth transfers and compensation for losses, the finance ministry said in a statement.

At the same time, it carefully balances investor protection with the state's regulatory rights, preserving sufficient policy space for sovereign governance.

"The agreement is expected to boost investments, provide greater certainty and protection for investors, facilitating the growth of trade and mutual investments by ensuring a minimum standard of treatment, and an independent dispute resolution mechanism through arbitration," it said.

It added that the agreement is expected to pave the way for increased bilateral investments between the two countries, which presently stands at a total of USD 800 million, thereby benefiting businesses and economies in both countries.

In this regard, Finance Minister Nirmala Sitharaman mentioned that both sides should have more business interaction to explore opportunities for investments, to gain benefits from the pact.

The pact was inked by Sitharaman and the Finance Minister of State of Israel, Bezalel Smotrich, here.

Both ministers emphasised their commitment to advancing economic cooperation in the fields of fintech innovation, infrastructure development, financial regulation, and digital payment connectivity.

"They agreed to enhance economic and financial cooperation between the two countries and to promote and protect investments on a reciprocal basis," the ministry said.

During April 2000 and June 2025, India received USD 337.77 million foreign direct investment (FDI) from Israel.

The signing of the pact is important as both countries are also negotiating a free trade pact.

India is also actively negotiating bilateral investment treaties (BITs) with over a dozen countries, including Saudi Arabia, Qatar, Oman, Switzerland, Russia, Australia and the European Union.

These investment treaties help in protecting and promoting investments in each other's countries.

With India set to become the third-largest economy and a hub for global manufacturing, the government is taking a series of measures to further improve its investment regime that encourages investors.

The government in the last Budget has announced revamping the current model of BITs to make it more investor-friendly and attract foreign players.

The country signed BITs with two countries in 2024. Last year, the Centre announced implementation of these treaties with the UAE and Uzbekistan.

Unlike a chapter related to investment promotion or facilitation in free trade agreements recently concluded, the investment protection element under a BIT provides a wide range of obligations and commitments bestowed upon foreign investors, which are expansive in nature.

In a BIT, the provision of mandatory exhaustion of local legal remedies for a period of five years before resorting to international arbitration is beneficial for both the investor and the state involved in a dispute.

India's approach of requiring local remedies aligns with its stance to protect taxpayer money and avoid prolonged and costly legal battles, while simultaneously providing arbitration as an alternate dispute resolution mechanism to investors.

FDI inflows into India crossed the USD 1 trillion milestone in the April 2000-June 2025 period, firmly establishing the country's reputation as a safe and key investment destination globally.

Last fiscal year, it stood at USD 80.61 billion. PTI RR MR MR