India Strengthening Economic Ties with Israel

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DELHI –  After heated debate over the situation in Gaza led to a walkout in the Rajya Sabha earlier this month, the Modi government’s decision to remain neutral in the ongoing conflict between Israel and Hamas is being interpreted by some analysts as a clear signal of strengthening Israeli-Indian economic ties.

While previous Indian governments have tended to side with the Palestinians in their political and military disputes with Israel, India’s relationship with Israel has strengthened considerably since the two countries established full diplomatic relations in 1992.

Over the last two decades, bilateral trade between Israel and India has increased rapidly, growing from US$180 million in 1992-93 to around US$6 billion last year.

During the same period, major exports from India to Israel included precious stones and metals, chemical products, textile and textile articles, mineral products and machinery. Similarly, Israeli exports to India included precious stones and metals, chemical and mineral products, base metals, machinery and military and transportation equipment.

Military Equipment

As the world’s largest arms importer by a significant margin, India’s purchase of Israeli military equipment initially laid the foundation for the strengthening of bilateral trade ties.

Historically reliant on Russia for most of its military hardware, India is now the largest buyer of military equipment from Israel and Israel is the second largest supplier of arms to India after Russia.

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Exporting more than US$7 billion worth of defense equipment in 2012, Israel recently identified India as its number one export target after India’s share of Israeli defense exports was estimated at around US$1.5 billion with significant growth potential.

Among other key purchases, the Israeli-made Arrow missile-intercept system, Barak-8 naval air and missile defense system and Rafael Advanced Weapons System continue to generate revenue through contracts with the Indian military.

FTA and Increased Cooperation Ahead

Alongside increased economic engagement, Indian and Israeli officials have increasingly sought to strengthen intergovernmental cooperation in a number of key technical fields including agriculture, infrastructure development, science, public health, energy, telecommunications, counterterrorism, security and defense.

Ongoing negotiations for an India-Israel free trade agreement (FTA) – expected to be finalized next year – have played a critical role in facilitating this engagement.

Most notably, Israeli energy and agricultural technology is thought to hold significant potential in helping India overcome persistent developmental obstacles such as power shortages and agricultural inefficiency.

During his tenure as chief minister of Gujarat, Narendra Modi visited Israel several times and secured substantial Israeli investment in Gujarat-based industrial research and development, solar and thermal power, pharmaceuticals, infrastructure, water recycling and water desalination.

Looking ahead, Israel’s economic relationship with India appears set to strengthen under Modi’s administration. Accounting for ideological similarities between the BJP and Likud, in addition to Israel’s technological compatibility with India’s developmental needs, the potential for cooperation between the two strengthening economies will continue to grow.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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