This document outlines the initiation of Free Trade Agreement (FTA) negotiations between India and Israel, detailing the agreement’s scope, historical context, mutual benefits, and potential challenges.
Formal Launch of FTA Negotiations
India and Israel formally initiated negotiations for a comprehensive Free Trade Agreement (FTA) on Thursday, November 20, 2025, in Tel Aviv. This momentous event saw the signing of the Terms of Reference (ToR), establishing a robust framework for future discussions.
The primary objective of this FTA is to foster deeper economic ties, unlock significant growth opportunities, and reshape commercial landscapes across vital sectors such as high-tech and agritech. This initiative signals a renewed focus on resilient supply chain resilience and innovation-driven growth, crucial amidst global economic challenges.
Key participants in this formal launch included India’s Minister of Commerce and Industry, Piyush Goyal, and Israel’s Minister of Economy and Industry, Nir Barkat.
ToR Scope: Comprehensive Economic Integration
- Market Access for Goods: Elimination of tariff and non-tariff barriers to facilitate smoother trade.
- Investment Facilitation: Streamlining processes to encourage capital and investment flow between the two nations.
- Customs Procedures: Simplification of customs regulations to enhance trade efficiency.
- Innovation and Technology Transfer: Increased cooperation to foster joint innovation and share technological advancements.
- Trade in Services: Easing norms to boost trade in various service sectors.
Minister Goyal emphasized that the FTA will significantly expand market access, facilitate capital and investment flow, and leverage the complementary nature of the Indian and Israeli economies. Notably, Israel has assured that it will not seek market access in sensitive Indian sectors such as dairy, rice, wheat, and sugar, demonstrating a commitment to a balanced agreement.
Trajectory of Trade: From Diamonds to Deep-Tech
Diplomatic ties between India and Israel were established in 1992, with initial trade primarily centered on diamonds. Over the decades, the trade basket has significantly diversified, moving beyond traditional commodities to encompass advanced technologies and strategic sectors.
Despite this diversification, recent bilateral merchandise trade (excluding defense) has seen fluctuations:
| Fiscal Year | Bilateral Merchandise Trade (US$ Billion) |
|---|---|
| FY 2022-23 | US$10.77 billion (peak) |
| FY 2023-24 | US$6.53 billion |
| FY 2024-25 | US$3.75 billion |
The decline in trade volume in recent fiscal years is primarily attributed to regional security situations and disruptions in global trade routes. Nevertheless, India remains Israel’s second-largest trading partner in Asia and its seventh largest globally, underscoring the strategic importance of this relationship.
Key Export and Import Categories
India’s Major Exports to Israel:
- Gems and jewelry
- Automotive diesel
- Chemical and mineral products
- Machinery and electrical equipment
- Textiles and agricultural products
India’s Major Imports from Israel:
- Electrical machinery and precious stones
- Arms and ammunition
- Fertilizers and high-tech electronics
- Advanced water management and irrigation technologies
Strategic Sector Cooperation and Innovation
- India-Israel Industrial R&D and Technological Innovation Fund (I4F): A US$40 million fund actively supporting joint projects in critical areas like agriculture, water, energy, healthcare, and ICT.
- Innovation Initiatives: Robust collaboration between Israel’s Startup Nation Central and India’s iCREATE, focusing on emerging fields such as fintech, agritech, and cybersecurity.
- Agricultural Cooperation: A revised agreement signed in April 2025 further solidifies joint efforts in agricultural innovation.
- Water Technology: Establishment of Centers of Water Technology (CoWT) at prestigious institutions like IIT Madras and IIT Roorkee, fostering expertise in sustainable water management.
This emphasis on technology and innovation aligns perfectly with India’s vision for digital transformation and the Aatmanirbhar Bharat (self-reliant India) initiative, aiming to build indigenous capabilities and reduce dependency.
Unlocking Potential: Mutual Benefits of the FTA
The proposed India-Israel FTA is expected to offer substantial benefits by capitalizing on their complementary economies, fostering growth and strategic alignment.
Benefits for India
- Enhanced Market Access: Expanded access to the Israeli market for Indian goods and services, boosting exports and economic growth.
- Technology and Innovation Transfer: Significant gains from Israel’s world-leading expertise in AI, quantum computing, machine learning, cybersecurity, precision agriculture, water conservation, and agritech solutions.
- Investment Opportunities: Increased Israeli capital flow into India’s manufacturing and tech ecosystems, supporting “Make in India” and job creation.
- Strategic Partnership: Deepened defense cooperation, facilitating joint R&D and co-production of advanced military technologies.
- Infrastructure Development: Opportunities for Indian companies to participate in Israeli infrastructure projects, such as the Tel Aviv metro.
Benefits for Israel
- Access to a Vast Market: Unparalleled market access in India for specialized products and services, particularly in deep-tech and defense.
- Increased Exports and Economic Growth: Stimulated exports and national economic growth through reduced tariffs and trade barriers.
- Investment Prospects: Promising investment opportunities in India’s dynamic and expanding economy.
- Global Strategic Alliance: Reinforcement of Israel’s strategic alliance with India, enhancing its geopolitical standing.
- Collaboration in Key Sectors: Deeper cooperation in AI, fintech, cleantech, and advanced manufacturing, leveraging India’s scale and talent pool.
Navigating Challenges Towards a Balanced Agreement
Both nations acknowledge and are prepared to address potential challenges to ensure a balanced and mutually beneficial Free Trade Agreement.
Challenges for India
- Geopolitical Relations: Balancing strengthened ties with Israel while maintaining a nuanced approach to the Middle East, considering energy reliance on the Gulf Cooperation Council and its diaspora in the region.
- Domestic Industry Concerns: Potential concerns from Indian SMEs regarding competition from Israel’s technologically advanced industries.
- Over-reliance on Foreign Technology: Ensuring co-production models adequately develop local capabilities to avoid long-term dependency, aligning with “Aatmanirbhar Bharat.”
- Trade Imbalances: Addressing the recent decline in exports to Israel and ensuring a more equitable trade balance.
Challenges for Israel
- Market Size Disparity: India’s vast market versus Israel’s smaller domestic market, potentially leading to disproportionately larger initial trade volume increases for India.
- Geopolitical Complexities: Regional conflicts in the Middle East impacting trade route stability and bilateral relations.
- Competition: Facing competition from other major trading partners like China in the Indian market.
- Regulatory Hurdles: Streamlining regulatory hurdles for seamless trade and investment in India.
Despite potential obstacles, both New Delhi and Tel Aviv are committed to finalizing a “win-win” agreement, meticulously addressing these points to foster clarity, predictability, and stability in their economic partnership.
A Future Forged in Collaboration
- Momentous Step: The signing of the ToR for the India-Israel FTA signifies a shared vision for enhanced economic prosperity and a robust strategic partnership.
- Complementary Strengths: India’s vast market and manufacturing base, combined with Israel’s prowess as a “Startup Nation” and innovation hub, present immense potential for mutual growth.
- Key Sectors for Cooperation: Future collaboration will heavily focus on critical areas like AI, cybersecurity, agritech, and sustainable water management.
- Path Forward: The agreement requires careful navigation of geopolitical relations and regulatory hurdles to ensure long-term success.
- Outlook: The unwavering commitment from both sides signals a bright future, strengthening bonds and contributing to a more interconnected and prosperous global economy. This agreement is poised to set new benchmarks for global partnerships in the 21st century.
About the Author
