India-Israel Trade Relations

 Introduction

India and Israel, two nations with diverse cultural backgrounds and geographical locations, have forged a robust and dynamic trade relationship over the past few decades. Since the establishment of diplomatic relations in 1992, their economic ties have grown exponentially, and today, they stand as important partners in trade and cooperation. In the fiscal year 2022-23, bilateral trade between India and Israel reached an impressive $4.5 billion, encompassing a wide array of products and sectors. This article delves deep into the multifaceted aspects of the India-Israel trade relationship, exploring the factors that have contributed to its growth, the key sectors involved, the strategic significance of this partnership, and the potential for further expansion.

Historical Perspective

The inception of diplomatic relations between India and Israel in 1992 marked a pivotal moment in their history. The initial trade volume stood at a modest $200 million. However, both countries recognized the potential for collaboration and made concerted efforts to foster economic ties. Fast forward to the fiscal year 2022-23, and the trade relationship has reached $10.1 billion, excluding defense-related transactions. This remarkable growth demonstrates the dedication of both nations to strengthen their economic bonds.

Key Sectors of Trade

Diamonds, Electronics, and Agriculture: The main items of trade between India and Israel are diamonds, electronic goods, and agricultural products. India's prowess in the diamond industry complements Israel's cutting-edge technology in diamond processing. Furthermore, India's growing demand for electronic goods has led to increased imports from Israel, contributing significantly to the bilateral trade volume. Additionally, the agricultural sector has emerged as a significant area of cooperation, with both countries sharing knowledge and expertise in areas like irrigation and water management.

Diversification of Trade: In recent years, the India-Israel trade relationship has diversified into several sectors, including pharmaceuticals, agriculture, IT and telecom, and homeland security. This diversification not only mitigates risks associated with dependence on a single sector but also opens up new avenues for collaboration and growth. The exchange of technology and expertise in these fields holds the potential for mutual benefits.

Investment Flows

Foreign Direct Investment (FDI): The economic partnership between India and Israel extends beyond trade, with FDI playing a crucial role. Nearly 300 Israeli companies have invested in India, indicating a deepening of economic ties. FDI inflows into India from Israel have been substantial, reaching $280.57 million during April 2000 to September 2022. These investments have contributed to job creation and technology transfer, further enhancing the economic relationship.

Balance of Trade

In FY 2022-23, Indian merchandise exports to Israel were valued at $7.89 billion, significantly surpassing Israeli exports to India, which were valued at $2.13 billion. This trade surplus in favor of India showcases the competitiveness of Indian goods and services in the Israeli market. However, it also highlights the potential for Israel to further tap into the Indian market by diversifying its export offerings.

Strategic Significance

India-Israel Strategic Relationship: Beyond economic cooperation, India and Israel share a strategic partnership. This relationship encompasses defense, intelligence sharing, counter-terrorism efforts, and cooperation in space and science. A free trade agreement between the two nations would not only enhance economic collaboration but also strengthen their strategic alliance.

Bilateral Agreements and MoUs: Both countries have signed several agreements and Memoranda of Understanding (MoUs) to promote collaboration in various sectors. For instance, during the visit of the Prime Minister of India to Israel in July 2017, seven MoUs were signed in areas such as innovation, technology, water, agriculture, and space & science. Additionally, a $40 million India-Israel Industrial R&D and Technological Innovation Fund was established to support joint projects. The visit of the Prime Minister of Israel to India in January 2018 further solidified this partnership with the signing of nine agreements in sectors like cybersecurity, oil and gas, solar energy, and more.

Potential for a Free Trade Agreement: A free trade agreement between India and Israel holds the promise of significantly boosting existing collaboration. By reducing trade barriers and tariffs, such an agreement would encourage greater trade flows, promote investments, and lead to the exchange of knowledge and technology across sectors.

Major Exports

India's exports to Israel include pearls and precious stones, automotive diesel, chemical and mineral products, machinery and electrical equipment, plastics, textile and apparel, base metals, transport equipment, and agricultural products. On the other hand, Israel exports pearls and precious stones, chemical and mineral/ fertilizer products, machinery and electrical equipment, petroleum oils, defense-related products, machinery, and transport equipment to India.

Conclusion

The India-Israel trade relationship has evolved from its modest beginnings in 1992 to a robust and diversified partnership. The bilateral trade, which stood at $200 million initially, has grown to $10.1 billion (excluding defense) in the fiscal year 2022-23. This remarkable progress reflects the commitment of both nations to strengthen their economic ties.

Diamonds, electronics, and agriculture form the backbone of this relationship, while diversification into sectors such as pharmaceuticals, agriculture, IT and telecom, and homeland security promises new avenues for growth. Investment flows in the form of FDI have been substantial, with nearly 300 Israeli companies investing in India.

The strategic significance of this partnership extends beyond trade, encompassing defense, intelligence sharing, counter-terrorism efforts, and cooperation in space and science. The signing of numerous agreements and MoUs underscores the commitment of both countries to deepen collaboration in various sectors. The potential for a free trade agreement between India and Israel holds the promise of further enhancing their economic ties.

In conclusion, the India-Israel trade relationship serves as a testament to the power of cooperation and the mutual benefits that can be derived from strong economic partnerships. As both nations continue to explore new avenues for collaboration and strengthen their strategic alliance, the future of their trade relationship looks promising and poised for further growth.

Citations

https://www.indembassyisrael.gov.in/pages?id=nel5a&subid=7ax9b

https://www.india-briefing.com/doing-business-guide/india/trade-relationships/india-israel-bilateral-trade-and-investment-trends

https://www.ibef.org/indian-exports/india-israel-trade

https://www.mea.gov.in/Portal/ForeignRelation/Website_brief_final_July_2023_As_on_July_28__final_.pdf