India and Israel share a deep-rooted strategic partnership built on shared democratic values, robust defense cooperation, and growing economic ties. Over the past three decades, this relationship has expanded significantly, with both nations benefiting from bilateral trade, technological collaboration, and military cooperation. However, despite these strong ties, India and Israel have yet to formalize a Free Trade Agreement (FTA), which could serve as a game-changer for their economic and strategic interests. An FTA would not only eliminate trade barriers and reduce tariffs but also create an enabling environment for investment, joint ventures, and enhanced collaboration in sectors such as defense, agriculture, renewable energy, and technology. At a time when global supply chains are shifting and nations are reevaluating their trade policies, an India-Israel FTA could position both countries as key players in the new economic order.
Trade between India and Israel has seen exponential growth since the establishment of diplomatic relations in 1992. From a modest $200 million in the early 1990s, bilateral trade (excluding defense) has now surpassed $10 billion. The primary sectors contributing to this trade include defense, where Israel is one of India’s top three arms suppliers, with annual defense deals exceeding $2 billion. This includes advanced weapons systems, UAVs, missile defense technology, and surveillance systems. The diamond trade accounts for over 50% of bilateral trade, with India importing rough diamonds from Israel and exporting polished diamonds. Israel’s expertise in agri-tech has significantly benefited Indian farmers, with over 30 Centers of Excellence established across India focusing on drip irrigation, hydroponics, and precision farming. Additionally, India and Israel are collaborating on AI, cybersecurity, medical technology, and water management solutions. Israeli tech startups are increasingly looking at India as a growth market, while Indian IT firms are exploring partnerships in Israel’s innovation ecosystem. Despite this strong trade relationship, high tariffs, regulatory barriers, and market access limitations continue to impede further growth. The absence of an FTA prevents both nations from fully capitalizing on their economic potential.
A Free Trade Agreement would provide duty-free access to key exports, reduce bureaucratic hurdles, and increase trade volume. According to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Israel Export Institute, an FTA could double bilateral trade to $20 billion by 2030. India’s pharmaceutical industry, agricultural products, and textiles would gain significant market access in Israel. Conversely, Israeli companies would benefit from lower import duties on high-end technology, defense equipment, and advanced agricultural tools. This would encourage more Israeli firms to invest in India’s Make in India initiative, boosting manufacturing and employment.
Israel is known as the “Startup Nation” due to its pioneering advancements in artificial intelligence, cybersecurity, and semiconductor technology. An FTA would create a more seamless technology-sharing ecosystem, promoting AI and cybersecurity collaboration to secure banking systems, defense networks, and critical infrastructure. India’s push for semiconductor self-reliance under the Production Linked Incentive (PLI) scheme aligns perfectly with Israel’s strengths in chip design and microelectronics. Similarly, Israel’s expertise in medical devices and pharmaceuticals could enhance India’s healthcare infrastructure, while Indian generic drug manufacturers could expand their presence in the Israeli market.
Israel has pioneered precision agriculture and water conservation technologies, both of which are crucial for India’s agrarian economy. An FTA would facilitate the transfer of advanced agri-tech solutions such as drip irrigation and smart farming systems, allowing Indian farmers to improve crop yields and reduce water consumption. More joint research initiatives could be established between Indian agricultural institutes and Israeli universities to develop climate-resilient crops. Additionally, high import duties currently make Israeli agricultural machinery expensive in India. An FTA would bring down costs, making modern farming techniques more accessible to Indian farmers.
India and Israel already enjoy a strong defense relationship, but an FTA could further accelerate co-development projects in the defense sector. Currently, most defense deals operate under government-to-government arrangements, limiting private-sector participation. An FTA would encourage private-sector defense collaboration, enabling Indian and Israeli companies to set up joint ventures to manufacture high-tech defense equipment, including drones, missile systems, and AI-driven warfare tools. It would also facilitate joint R&D in electronic warfare, cybersecurity, and military robotics, strengthening India’s defense capabilities.
India has ambitious Net Zero targets for 2070, and Israel’s advancements in solar and hydrogen energy could help India accelerate its clean energy transition. An FTA would ease investment restrictions in renewable energy, allowing Israeli firms to invest in India’s solar parks, hydrogen fuel projects, and battery storage solutions. Additionally, Israel’s expertise in seawater desalination and wastewater recycling could help address India’s severe water scarcity challenges.
While an India-Israel FTA has clear benefits, there are certain challenges that must be addressed. India has been selective in signing Free Trade Agreements due to concerns over trade imbalances. However, the success of India’s FTA with the UAE (CEPA) proves that a well-structured deal can be mutually beneficial. Negotiating tariff reductions will also require careful diplomacy, as Israel seeks lower tariffs on high-tech goods and processed food products, while India wants greater market access for agriculture, pharmaceuticals, and textiles. Differences in quality standards, certification processes, and intellectual property laws could create regulatory bottlenecks, making it essential for both nations to establish clear frameworks to facilitate trade.
India and Israel are natural economic partners, and a Free Trade Agreement would be a transformational step in their bilateral relations. It would not only enhance trade and investment but also solidify their strategic partnership in defense, technology, agriculture, and energy. Given the shifting global economic landscape, an India-Israel FTA is not just an economic necessity but a strategic imperative. To move forward, both governments must fast-track negotiations and focus on high-growth sectors. Additionally, setting up a Joint Economic and Trade Committee to resolve trade barriers and streamline regulatory processes would be crucial. A stronger India-Israel economic alliance will pave the way for mutual prosperity, innovation-driven growth, and a resilient global supply chain, reinforcing their positions as key players in the 21st-century economy. The time to act is now.
