Israeli Prime Minister Naftali Bennett’s visit to India next week is expected to boost ongoing trade pact discussions between the two countries. Bennett’s first trip to India is also set to see greater cooperation in technology spanning space tech, agriculture, and the digital realm. Bennett’s first visit to India is scheduled for April 2 to mark the 30th anniversary of the establishment of relations between Israel and India. However, there is some uncertainty about an in-person meeting happening next week as Bennett has caught Covid. However, both nations are yet to officially announce any changes to the planned trip. If it goes through, the trip is expected to give a further fillip to trade talks. While both governments have announced they are negotiating a deal, discussions have not progressed as much as would have been desired. While the lack of a bilateral investment pact had initially held up the talks, negotiations on the trade pact are moving slowly due to market access issues. Barring the pandemic-induced slowdown, the total trade between India and Israel has grown over the years, driven mostly by Indian exports. It had hit a high of $5.6 billion in 2018-19, before falling to $4.6 billion in the Covid-hit 2020-21. However, trade again rebounded to $6.3 billion in the first 10 months of the current financial year. Exports stood at $3.9 billion, up from $2.7 billion in 2020-21, and the pre-pandemic level of $3.3 billion. India’s imports from Israel stood at $2.3 billion in the latest year, up from $1.9 billion in the previous year. India has maintained a positive trade balance with Israel, whereby Indian exports have continued to outpace imports from the country. Despite its small geographical population size, Israel’s buying list from India has expanded every year for the past five years, an official said.
The largest export to Israel is processed petroleum products ($1.3 billion). Sources said Israel is keen on expanding this at a time when global oil supply chains have been repeatedly disrupted. Cut and polished diamonds are the second-largest exports at $1.1 billion. While India is the largest exporter of polished diamonds in the world, sending out more than 75 percent of the world supply, Tel Aviv is among the largest global diamond trading centres. The West Asian nation relies heavily on diamond exports which make up 11.3 percent of its export kitty by value. Non-industrial diamonds figure significantly on both sides of bilateral trade. ”Israel has high manufacturing costs which are prompting their firms to send over small raw diamonds to India for processing,” a senior functionary of the Gems and Jewellery Export Promotion Council said. However, market access has been a point of contention for electronics and tech products, new sectors identified by Israel as a potential game-changer for exports to India. Electronics such as integrated circuits, broadcasting equipment, industrial printers and valves make up almost 17 percent of the country’s exports and it is keen on inserting its exports in India’s growing value chain for electronics manufacturing. “Israel can’t compete with India. We are simply too small. However, the technological cooperation we could have will enable technologies and sophisticated products from both countries to enter each other’s markets. In agriculture, the use of sensors, big data and satellites can be leveraged to increase yields. But for India to be able to use Israeli technology to make Indian agriculture more efficient, the market needs to be opened up,” a senior Israeli diplomat said.
Current state of talks
Israel had been one of the few developed nations to not raise an issue with India’s unilateral suspension of existing bilateral investment pacts in 2015. Both sides had then begun discussions on a new investment pact under the Centre’s then-new model bilateral investment treaty (model BITs) draft. However, despite both sides saying that talks on the subject were progressing well, the negotiations have never been completed. “Israel doesn’t have an issue with India’s current rules that allow international arbitration to companies only after exhausting all domestic legal options. All policy-related talks on investment are now being conducted under the framework of the upcoming trade pact,” a senior official said. Meanwhile, the new administration in Tel Aviv has doubled down on its demands for India to buy more Israeli goods. Currently, only 3 per cent of Israeli goods flow to India, and Tel Aviv has pointed out that India’s exports to Israel have grown at a much faster pace than its imports from Israel, the official added. However, despite this, as of 2019, India was the seventh-largest destination for Israeli goods after the US, China, Palestine and European nations such as the Netherlands, Germany and the UK, the official added. India is expected to pressure Israel into investing more. “Till December 2021, historical foreign direct investment (FDI) from Israel stood at $263 million, up from $86 million in 2015. But Israel’s position as the 44th largest investor in India in 2015 has stayed the same even in 2021,” a senior trade policy expert from the Indian Institute of Foreign Trade (IIFT) said.
On the defence front, India is the largest buyer of Israeli equipment. For India, Israel is currently the second-largest source of military hardware after Russia. The long-term nature of these contracts and the geopolitics involved in defence deals, which are not expected to change drastically anytime soon, are set to assure business continuity in this area. All eyes will also be on how Bennett and his Indian counterpart Narendra Modi connect during the visit, after years of public bonhomie with Bennett’s predecessor Benjamin Netanyahu. Over the past seven years, Modi had increasingly affirmed India as Israel’s all-weather friend and had publicly appreciated his personal friendship with Netanyahu multiple times. The ‘great friendship’ hailed by both leaders saw bilateral relations warm up significantly. In July 2017, Modi became the first Indian Prime Minister to visit Israel in a trip termed as historic by both nations. Netanyahu came to India the following year, accompanied by the largest ever 130-strong delegation from Israel. The visit saw ties diversify for the first time into areas such as cybersecurity, oil and gas production, air transport, film production, space technology, and innovation.